Epiroc Publishes Annual and Sustainability Report for 2020

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Published: 2021-03-11 08:30:00 CET

Epiroc Aktiebolag Annual Financial Report Epiroc publishes Annual and Sustainability Report for 2020

Stockholm, Sweden: Epiroc AB, a leading productivity partner for the mining and infrastructure industries, today published its Annual and Sustainability Report for 2020.

The report describes how Epiroc, despite being significantly affected by the Covid-19 pandemic, adapted its way of working, lowered costs, prioritized innovation, showed resilience in profitability, and delivered solid results. Highlights of the year included that: Epiroc provided customers with solid aftermarket support that strengthened customer relations during a difficult time, Epiroc continued to roll out automation, digitalization and electrification solutions that boost customers’ safety and productivity, Epiroc set new ambitious sustainability goals for 2030 on energy efficiency, safety and diversity, and that Helena Hedblom took over as President and CEO.

The Annual and Sustainability Report also outlines Epiroc’s strengths and goals, including operating model, value creation, as well as the company’s focus areas within sustainability. The report is available at www.epirocgroup.com/en/investors.

For more information please contact: Karin Larsson, Vice President Investor Relations +46 10 755 0106 [email protected] Ola Kinnander, Media Relations Manager +46 70 347 2455 [email protected]

This information is information that Epiroc AB is obliged to make public pursuant to the Securities Markets Act. The information was submitted for publication, through the agency of the contact persons set out above, at 8.30 am CET on March 11, 2021.

Epiroc is a vital part of a sustainable society and a global productivity partner for mining and infrastructure customers. With ground-breaking technology, Epiroc develops and provides innovative and safe equipment, such as drill rigs, rock excavation and construction equipment and tools for surface and underground applications. The company also offers world-class service and other aftermarket support as well as solutions for automation, digitalization and electrification. Epiroc is based in Stockholm, Sweden, had revenues of SEK 36 billion in 2020, and has 14 000 passionate employees supporting and collaborating with customers in about 150 countries. Learn more at www.epirocgroup.com.

Epiroc Annual and Sustainability Report 2020

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This news release was distributed by Company News System, www.nasdaqomxnordic.com/news Annual and Sustainability Report 2020 1

1 2

We are a leading productivity and sustainability partner for 7 customers within 3 mining and infrastructure. Our products 4 are primarily 1 used in hard rock applications. 8

Performance-critical solutions Mining applications include production and development work for both underground and open-pit mines, as well as mineral exploration.

Infrastructure applications include blasthole drilling for tunneling, for road, railway and dam construction, aggregate production and other construction work, demolition of buildings, bridges and industrial plants as well as other drilling applications. 10

11 4 6 7

1 ROC – surface drill rig 8 Diamec – exploration drill rig

2 PitViper – surface drill rig 9 Water-well drill rig

3 Simba – underground production drill rig 10 Hydraulic breaker

4 Boomer – underground face drilling rig 11 Silent demolition tool

5 Boltec – underground drill rig for rock reinforcement 12 Mobile Miner – mechanical rock excavation machine

6 Scooptram – underground loader 13 Service workshop with battery charging station

7 Minetruck – underground truck 14 Control room UnitedKAPITELHEADER in Performance. Inspired by Innovation. Performance unites us, innovation inspires us and commitment drives us to keep moving forward. Count on Epiroc to deliver the solutions you need to succeed today and provide the technology of tomorrow.

iv Epiroc Annual and Sustainability Report 2020 6 18 34

CEO comments Our strengths and goals Sustainability

Epiroc AB is a public company. Epiroc AB and its subsidi- Content aries are sometimes referred to as the Epiroc Group, the Group, or Epiroc. Epiroc AB is also sometimes referred to The year in brief 4 as Epiroc. Any mention of the Board of Directors or the CEO comments 6 Board refers to the Board of Directors of Epiroc AB. Epiroc was part of the Atlas Copco Group, founded in 1873, until Covid-19 10 June 18, 2018, when Epiroc was distributed to the share- This is Epiroc 12 holders of Atlas Copco and listed on Nasdaq Stockholm. Our strengths and goals 18 About this report We are a leading productivity and sustainability The audited annual accounts and consolidated accounts partner in attractive niches 20 can be found on pages 50–63 and 74–133. The corporate We have a high proportion governance report examined by the auditors can be of recurring business 24 found on pages 64-73. We drive the future in intelligent mining and infrastructure 26 Epiroc reports its sustainability work for 2020 according We have a strong and proven to the Global Reporting Initiative (GRI) Standards version operating model 30 2018, “Core” option. The sustainability report has been We create value for our stakeholders 32 prepared in accordance with disclosure requirements Sustainability set out in the Swedish Annual Accounts Act, chapter 6, 34 Our approach to sustainability and corporate paragraph 11. responsibility 34

The sustainability information that has been reviewed by Epiroc 2030 sustainability goals 37 the auditors can be found on pages 34–49 and 138–145. We use resources responsibly and efficiently 38 The assurance report issued by the auditors can be found on page 145 and a detailed GRI Index can be found at We invest in safety and health 42 www.epirocgroup.com. We grow together with passionate people and courageous leaders 44

Forward-looking statements We live by the highest ethical standards 46 Some statements in this report are forward-looking, and Administration report 50 the actual outcomes could be materially different. In addition to the factors explicitly discussed, other factors Five-year summary 63 could have a material effect on the actual outcomes. Corporate governance report 64 Such factors include, but are not limited to, general business conditions, fluctuations in exchange rates and Risk management 72 interest rates, political developments, the impact of Financial information 81 competing products and their pricing, product development, commercialization and technological difficulties, Signatures 133 interruptions in supply, and major customer credit losses. Financial definitions 134 In 2020, the Covid-19 pandemic affected Epiroc’s production and supply of equipment and aftermarket services, Auditor’s report 135 as well as customers and suppliers. Despite having Notes on sustainability 138 continuity measures in place, the effect of any pandemic may have material adverse effects on Epiroc’s business The Epiroc share 146 and financial position also in the future. Further information 148

Sustainability report Annual report reviewed by the auditors

Cover: Epiroc MT42 Minetruck at the Agnico Eagle Kittilä mine in Finland. THE YEAR IN BRIEF

Orders received and revenues 2020 in brief MSEK

The Covid-19 pandemic affected Epiroc significantly in 2020, yet we managed to Orders received, adapt our way of working, lower our costs, MSEK R e v e n u e s , prioritize innovation, show resilience in MSEK our profitability, and deliver a solid result.

Operating profit and margin

MSEK %

Helena Hedblom new Orders received were Operating profit, President and CEO as from unchanged organically, MSEK O p e r a t i n g March 1, 2020 but decreased 7% due margin, % to currency Adjusted operating margin, % Operating profit and margin was supported by The Board proposes a efficiency initiatives. The dividend of SEK 2.50 and a operating margin improved distribution of SEK 3.00 per Return on capital employed to 20.4% share through mandatory MSEK % redemption

Reduction in lost-time Average capital employed, cash, injuries and lower CO2 Revenues decreased MSEK emissions from transport 5% organically Average capital employed, excl cash, MSEK Return on capital employed, % Key figures Numbers prior to 2019 are not restated for IFRS 16. 2020 2019 Change

Orders received, MSEK 36 579 39 492 -7% Revenues, MSEK 36 122 40 849 -12% Energy consumption and CO2 emissions MWh Tonnes Operating profit, MSEK 7 382 8 136 -9% Operating margin, % 20.4 19.9 Profit before tax, MSEK 7 087 7 843 -10% Transport CO2, tonnes/ Profit margin, % 19.6 19.2 Cost of sales, Profit for the period, MSEK 5 410 5 884 -8% MSEK MWh energy Operating cash flow, MSEK 7 006 6 688 +5% from operations/ Cost of sales, Basic earnings per share, SEK 4.48 4.89 -8% MSEK Dividend per share, SEK 2.50* 2.40 +4% Redemption per share, SEK 3.00* -

Return on capital employed, % 21.7 27.6 Lost-time injury frequency and sick leave

Net debt/EBITDA ratio -0.45 0.05 % LTIFR Lost-time injury frequency rate (LTIFR) 2.0 2.7 -27% Sick leave, % 2.1 2.1 0% MWh energy from operations/ Cost of sales, MSEK 7.1 6.8 +4% Sick leave, % Transport CO2, tonnes/ Lost-time injury Cost of sales, MSEK 4.1 4.5 -8% frequency rate (LTIFR)

Note: Financial statements prior to 2018 are combined. See note 1 in the Annual and Sustainability Report 2018. *Proposed by the Board of Directors.

4 Epiroc Annual and Sustainability Report 2020 THE YEAR IN BRIEF Highlights 2020

Sustainability goals for 2030

We have high ambitions when it comes to sustainability and in 2020, we established long-term sustainability goals that support the Paris Agree- ment and the UN 2030 Agenda for Sustainable Development. The goals further advance the Group’s ambitions related to climate change, safety and diversity. The ambitious goals include halving CO2 emissions from operations, transport, as well as from customers’ use of Epiroc equipment.

Achievements within automation, digitalization and electrification

Epiroc and ASI Mining has won a Epiroc is the first equipment supplier to contract to convert Roy Hill’s mixed- provide a mixed-fleet automation solu- fleet of haul trucks from manned to tion for underground mining, for New- autonomous use at its iron ore surface crest Mining Limited at its Cadia Valley operation in Australia. gold and copper operation in Australia.

Epiroc and the world-leading com- Epiroc took part in the European mercial explosives provider Orica jointly Union-funded SIMS project that took presented a prototype of Avatel™, the place during 2017–2020 in the Kittilä first-of-its-kind, semi-automated explo- mine in Finland. In the project, Epiroc’s sives delivery system that will enable battery-powered mining equipment was safer and more productive blasting tested in a real mining environment. After operations in underground mines. successful testing, the mine has now purchased its first battery-powered rigs.

Safety and productivity in focus as Epiroc wins large equipment order in Russia

Norilsk Nickel, one of the world’s largest producers of nickel, palladium, platinum and copper, ordered underground reinforcement equipment for their Mayak and Komsomolskiy mines in Russia. The order value exceeds MSEK 100 (MUSD 11).

High demand for aftermarket solutions

Codelco, the world’s largest copper Epiroc has successfully launched new producer, opened the Chuquicamata value-added services, for example an underground mine in 2019. For this mine, extended offering of products, retrofit of Codelco has not only ordered equip- batteries into existing fleet and battery ment, but also several years of technical as a service. support and training. The order is valued at more than MUSD 20 (MSEK 190) and was booked in April 2020.

Epiroc Annual and Sustainability Report 2020 5 CEO COMMENTS

Agility in challenging times and the way forward

The Covid-19 pandemic affected us significantly in 2020, yet we managed to adapt our way of working, lower our costs, prioritized innovation, show resilience in our profitability, and deliver a solid result. We did this while prioritizing health and safety and supporting our customers in this unique and challenging situation. I am proud to see the way our organization has been able to adapt to the situation.

At Epiroc, we put safety first – always In 2020, the Covid-19 pandemic had a significant impact on Improved health and safety is Epiroc. We implemented new ways of working and took something we always prioritize – many preventive and protective measures. Improved health and safety is however something we always prioritize – not not only in our own operations, but only in our own operations, but also for customers and part- also for customers and partners. ners. We have two larger initiatives ongoing to build an even stronger safety culture. Let me start with the SafeStart® program, which helps Helena Hedblom, President and CEO to increase safety awareness and reduce human errors that lead to injuries. With SafeStart®, the typical short-term gains from safety training transforms into permanent gains. It also contributes to a strengthening of a sustainable safety culture.

6 Epiroc Annual and Sustainability Report 2020 CEO COMMENTS

Another example is the Live Work Elimination program. In the second quarter, Epiroc was significantly impacted By having safety in mind when designing the equipment, we by restrictions related to the pandemic, yet we managed to create solutions that remove people from being exposed to adapt our way of working, lower our costs and show resil- the risk of hazardous energy. ience in our profitability. We did this while prioritizing health We have a very good trend when it comes to lost-time and safety and supporting our customers in this unique and injuries. Still, we will never be satisfied as long as we have challenging situation. injuries. We will do all that we can to avoid these altogether. Strong recovery in orders and revenues Challenging beginning of 2020 Customer demand recovered in the second half of the year, The Covid-19 pandemic significantly affected the world – and as the level of restrictions eased off and more mining and Epiroc – starting in the beginning of 2020. Our operations infrastructure sites were operational. were impacted from around March, with some customers For the full year, the order intake was unchanged organi- stopping or reducing their business activities. cally, negatively impacted by lower orders for equipment as

Epiroc Annual and Sustainability Report 2020 7 CEO COMMENTS well as for Tools & Attachments. Our service business devel- A strong cash flow has many benefits. First, it allows us to oped strongly and orders received increased 7% organically. continue to prioritize investments in innovation and further Our customers’ willingness to invest in equipment has develop our technology leadership. It also enables us to be increased. In the year, we had some larger equipment orders, ready when and if acquisition opportunities arise. but small- and medium-sized orders were dominating, which indicates a good level of underlying demand. Managing the crisis and building for the future Following a challenging year, revenues decreased 5% On June 18, we celebrated our two-year anniversary as a organically and 12% in total, including a negative impact from listed company. The celebration was of course held online currency, to MSEK 36 122. due to the pandemic. We have the speed and agility of a young and hungry company but with significant experi- Pandemic strengthens interest ence and deep roots dating back to 1873. As we build for the in new technology future, we remain focused on our strategic priorities: innova- It is clear that the pandemic – or rather the restrictions that tion, aftermarket, operational excellence and sustainability. forced customers to either stop or reduce activities – have increased the interest for our automation and digital solutions. Innovation and powerful partnerships Our customers have shown growing interest in these solu- Coming from the R&D area myself, innovation is close to my tions for several years and this trend has accelerated. This is heart. Innovation is in our DNA and we are investing more the case not only in the developed markets that have been than we have ever done in R&D to stay ahead. In addition, our early adopters in the past, but in all markets. relentless focus on innovation extends beyond what we do Our decision to establish regional-application centers ourselves. We also leverage the R&D from customers, sup- around the world have contributed to make this happen. By pliers and other partners. Examples of powerful partnerships: bringing innovations and solutions closer to the customers, • With Mobilaris, we innovate on positioning systems we make it easier for them to embrace new technologies. underground. • With ASI Mining and Combitech, we develop solutions for Resilient operating margin and autonomous operations and information management. savings from efficiency actions • With Orica, we develop solutions for semi-automated Epiroc has an agile business model where we continuously explosives charging. adapt to the market situation. Already in the first quarter, we • With Northvolt and ABB, we collaborate on battery-electric initiated contingency actions in response to lower demand. vehicles, batteries and electric drive trains. The actions with short-term effects included reduction of • And with Ericsson, we work on 5G connectivity. temporary workforce and consultants, work-time reduction, and lowering discretionary spending. Worth noting is that we Three major technology shifts did not utilize governmental support for short-time work in There are three major technology shifts ongoing that are Sweden. making the mining and infrastructure industries more pro- Efficiency actions to strengthen Epiroc in the long run ductive and sustainable: automation, digitalization and elec- were implemented throughout the organization, with the trification. We are in the driver’s seat for these shifts, which largest one aiming to save more than MSEK 500 annually are benefiting our customers in many ways. To remain in the as from Q3 2020. In addition, the supply-chain improvement forefront, we will continue to enter strategic partnerships and program has yielded positive results, even if at a slower pace foster an innovative culture. than initially anticipated due to the pandemic. All in all, the implementation of the efficiency actions has Automation boosts safety and productivity been successful and the operating margin for the full year We have a market-leading position in automation with proven improved to 20.4%, implying a resilient and industry-leading solutions throughout the world. margin, which is also our goal. For example, in 2020 we began implementing the world’s largest mixed–fleet automation project for Roy Hill’s iron Translating earnings into cash flow ore surface mining operation in Australia together with In challenging times, cash flow is more important than ever. ASI Mining. We also made progress on the world’s largest Despite experiencing the largest crisis in many years, we mixed-fleet automation initiative for underground mining, for generated a strong operating cash flow of MSEK 7 006, Newcrest Mining in Australia. higher than in 2019. The efficiency actions, the solid profit and Automation is key for several reasons. First of all, it is an increased cash flow from reduction of working capi- about protecting people, keeping them away from danger- tal contributed. The organization has done well to collect ous situations. The customers also benefit from increased receivables. productivity, lower fuel consumption and reduced total cost of ownership.

Digitalization unleashes hidden Coming from the R&D area myself, aftermarket potential Digitalization offers much potential both for our customers innovation is close to my heart and and for us. We offer a wide variety of digital solutions. For example, connectivity to locate machines and people in a one of my strategic priorities. mine, teleremote steering of equipment, and fully autono- Innovation is in our DNA and we are mous solutions. Digitalization also improves our own operations. Our investing more than we have ever increased adoption and use of Robotic Process Automation done in R&D to stay ahead. make our processes more efficient and reduce the need for mundane data entry. In addition, the more machine data we have, the better we can develop our equipment. It also Helena Hedblom, President and CEO makes us more efficient on how we work with the aftermarket. The more information, the better value proposition we

8 Epiroc Annual and Sustainability Report 2020 CEO COMMENTS can offer our customers, strengthening their productivity and safety. In sum, connectivity is positive in many ways. To offer best-in-class solutions – Battery-electric machines for zero-emission with automation, digitalization and operations Epiroc has a long history of electrification. Already in the electrification – and always being 1970s, we offered electric powered drill rigs, using cables. Today, we offer the largest range of battery-electric vehi- close to our customers, we will cles for underground applications, with customers on every further strengthen the relationships continent. In 2020, we worked hard to extend the offering further and with our customers and make to help customers take the step into electric. Our batteries Epiroc even stronger. We dare to as a service concept lowers the bar to entry, as the customer does not have to do the capital investment. Instead, the cus- think new. tomer pays an ongoing fee when using the service. We will offer all our equipment in battery electric versions Helena Hedblom, President and CEO by 2025 for underground and by 2030 for surface. The technology is now well established, and more and more customers are realizing the advantages that come with using electric machines instead of diesel. The benefits include improved health and safety due to less emissions in use, noise and heat, as well as lower total cost of operation and higher productivity. The advantage is especially significant for underground operations where customers tradition- In Epiroc, we foster an innovation culture, and our new ally invest heavily in ventilation to dilute or remove diesel vision, which was launched in January 2021, is Dare to think fumes and other emissions. new. The world and the industry are changing rapidly and to We are proud to spearhead the industry’s drive toward a continue to be a true productivity and sustainability partner fossil-free future. for our customers we need to dare to think new.

Acquisitions to enhance our leadership further The way forward We always look to acquire businesses that can enhance our For 2021, we have many exciting products and solutions technology leadership, our presence in the market and/or coming to the market. To mention just a couple: our offer to the market. In 2020, we announced a couple of The new generation Boomer designed for mining con- acquisitions. In December for example, we announced the tractors will launch in the beginning of the year. It is a true acquisition of MineRP with around 200 employees. The com- development rig, fully equipped for multi-task operation and pany, which has offices in South Africa, Canada, Australia and automation. Of course, we will also provide a battery-electric Chile, supports large and medium-sized mines in optimizing driveline option in due course. their efficiency by providing a leading software platform solu- Another revolutionary innovation is our coming offering tion that integrates technical mining data. The combination of fully mechanized charging through our collaboration with of MineRP’s platform with Epiroc’s digital solutions, partners Orica, the leading explosives manufacturer, to improve the and global presence has the potential to transform the way safety and work environment for operators. In 2021, the field- that mines operate. testing of the prototype start. If I then take a longer view. Where is Epiroc in ten years? High sustainability ambition We know that our customers have many challenges. Epiroc Epiroc is a vital part of a sustainable society and sustainabil- will be “the enabler” in providing solutions to overcome ity is integrated in everything we do. In fact, our innovation these challenges and lead the transition towards sustain- agenda goes hand in hand with our customers’ sustainability able mining and infrastructure. To offer best-in-class solu- agenda. It is a competitive advantage and a driver of long- tions – with automation, digitalization and electrification term growth. – and always being close to our customers, we will further We are a signatory to the UN Global Compact and fully strengthen the relationships with our customers and make support the 10 principles in the areas of human rights, labor, Epiroc even stronger. We dare to think new. environment and anti-corruption. In 2020, we set our long-term sustainability goals for 2030 that support the Paris Agreement and the UN 2030 Agenda for Sustainable Development. The goals include no work- related injuries and to halving CO2 emissions from opera- Helena Hedblom tions, transport as well as from machines sold. The use phase President and CEO of our equipment represents the majority of our CO2 impact, so that aspect is especially crucial. In addition, we also have Stockholm, January 26, 2021 put strong focus on adherence to our Code of Conduct. Last, but not least, we have the ambition to significantly increase the gender diversity and we have set an ambitious goal to double the number of women in operational roles.

Committed people who dare to think new The year was challenging with quick changes in demand. However, we found new ways of working, took necessary actions and focused on being the best possible partner for our customers. Committed employees made it happen.

Epiroc Annual and Sustainability Report 2020 9 COVID-19 Covid-19

When the first alarming news about Covid-19 emerged in the beginning of 2020, Epiroc immediately took a proactive approach with the focus on health and safety. The illustration below provides an overview on how Covid-19 affected us and what we did to minimize the negative effects.

Covid-19 Q1 Q2

The Covid-19 First news on Covid-19 cases with local Rapidly increasing new cases The number of cases slowed down The pandemic increased in pandemic development "break-outs" in some countries. On and fatalities led to significant as a result of actions and restrictions, strength again, resulting in more March 11, it was declared a pandemic. restrictions and lockdowns. but the risk remained high. restrictions. Vaccinations started.

Epiroc actions Already in January, the organization Epiroc increased the efforts in Besides encouraging employees Epiroc continuously highlighted took action in countries where needed. minimizing risk with quick adoption to remain careful, Epiroc stressed the importance of safety and Globally, Epiroc encouraged employees to new, virtual ways of working as a the importance of social interaction. psychological well-being. In to prioritize safety, reduce face-to-face result. Service personnel at remote Anniversaries and other celebrations the annual employee survey, meetings and work from home when sites showed commitment by were mentioned as good reasons to questions were added to follow Collaboration between suppliers possible. Digital information meetings staying on site longer than planned interact - virtually of course. In the up on the previous Covid-19 pulse and customers is more important on Covid-19 with CEO Helena Hedblom to limit the amount of crew changes, Epiroc University, several classes were survey. The employees appear than ever in a world where started and all non-critical travelling even sacrificing planned breaks. launched on “working digitally”. The to remain positive and feel that restrictions can change the was stopped. The Board of Directors A pulse-survey was done, which classes cover technical aspects, how Epiroc is taking a genuine interest conditions of doing business has continuously been informed about showed an increased engagement to improve IT-security and increase in their health. The engagement overnight. To be able to prioritize the situation and the actions taken. level throughout the organization. social interaction when working online. score increased compared to last and to continuously improve year, despite the pandemic. presence and supply chain is key to remain the supplier of choice. It is clear that Epiroc’s Customer demand Customer activity was impacted by In April and May, a large number of The customer demand improved The customer activity and decentralized organization development restrictions and supply chains and customers had to temporarily stop compared to Q2, as the effects demand was stable compared adapts quickly when demand transports were disrupted, primarily operations or work with reduced from Covid-19 restrictions were to Q3 and improved compared and/or the working environment at the end of the quarter. Epiroc capacity due to Covid-19 restrictions. At more moderate. The lower activity to the previous year, despite the changes. The actions taken in prioritized supporting customers the end of the quarter, fewer customers in some markets still impacted rising number of infected people 2020 will make Epiroc even more with spare parts, rock-drilling tools, were impacted by the restrictions. the aftermarket demand. and increased restrictions. efficient for the future. We have and other essential services to keep new digital ways of working that customers’ operations running. support customer interactions and improve collaboration further. As the customer demand Impact on In January, Epiroc had its first case In production, short-term work was The distribution centers and At the end of the year, Epiroc’s for automation and digitalization Epiroc operations of Covid-19. Throughout the quarter, implemented and contingency manufacturing facilities were facilities were operational. The solutions accelerated the situation changed rapidly and by plans were initiated. In the supply operational and the capacity was restrictions had some negative during the pandemic, we the end of the quarter, some critical chain however, changed freight adapted to the demand. Deliveries impact on transport and supply chain, continue to emphasize and suppliers and some Epiroc facilities lanes, shutdowns, and border and commissioning of equipment while focus remained on prioritizing innovate in these areas. were closed temporarily. Among others closures resulted in a higher were largely carried out as deliveries of components and parts in Canada, South Africa, India and Italy. activity level than ever before. planned - many times virtually. to keep customers up and running.

Financial impact on As most of the impact from Covid-19 The Covid-19 pandemic affected Covid-19 restrictions impacted revenues The stable demand impacted Epiroc’s results was towards the end of the quarter, Epiroc's orders, revenues and negatively in the quarter, but less than in revenues, which improved compared the financial impact in Q1 was limited. profit significantly in the quarter. Q2. Revenues decreased 3% organically. to Q3. The long-term efficiency Revenues were down 15% organically The efficiency actions were executed actions that were initiated earlier in compared to the previous year. according to plan and supported the the year started to yield results, which Cost savings however, contributed profit and the cash-flow generation. led to an improved profitability. to a resilient operating margin.

10 Epiroc Annual and Sustainability Report 2020 COVID-19

In the Q3 Q4 future

For further information, see page 45 (sustainability) and pages 72-79 (risks).

Epiroc Annual and Sustainability Report 2020 11 THIS IS EPIROC This is Epiroc

Epiroc is a vital part of a sustainable society and a global productivity partner for mining and infrastructure customers. With ground-breaking technology, we develop and provide innovative and safe equipment, such as drill rigs, rock excavation and construction equipment and tools for surface and underground applications. We also offer world-class service and other aftermarket support as well as solutions for automation, digitalization and electrification.

Sales in >150 countries

Revenues MSEK 36 122

Operating margin 20.4%

Employees, Dec. 31 13 840

12 Epiroc Annual and Sustainability Report 2020 THIS IS EPIROC

epi + roc epi in Greek rocca in Latin at, close, upon rock

Epiroc is a 148-year old start-up. We have a strong heritage with proven expertise since 1873, while also having the benefits of being a young company. We have passionate employees in a decentralized organization, which enables quick decision making, benefitting both customers and results. Our name Epiroc comes from Greek and Latin roots meaning “at the rock” – epi, Greek for “at, close, or upon,” and roc, Latin for “rock.” It reflects our core business, our proximity to customers and the strength of our partnerships well.

Epiroc Annual and Sustainability Report 2020 13 THIS IS EPIROC Innovative, safe and sustainable solutions for increased productivity

We take pride in leading the mining and infrastructure industries in becoming more intelligent, efficient and sustainable. When our customers evaluate suppliers, they strive to improve productivity and lower the total cost of ownership while also improving sustainability performance. Our innovation leadership in areas such as automation, digitalization and electrification in combination with a strong track record of quality and reliability is highly valued.

Equipment

Mining 76% of orders received Underground mining Surface mining Exploration in 2020 • Underground drill rigs • Surface drill rigs • Core drill rigs • Loaders and trucks • Reverse circulation drill rigs • Mechanical rock excavation • Oil and gas drill rigs • Rock reinforcement equipment • Ventilation systems

Infrastructure

24% Underground civil Surface civil engineering of orders received engineering • Surface drill rigs in 2020 • Underground drill rigs • Water well drill rigs • Loaders and trucks • Dimensional stone drill rigs • Rock reinforcement equipment • Ventilation systems

32% of orders received in 2020

14 Epiroc Annual and Sustainability Report 2020 THIS IS EPIROC

Robust electric loader The Scooptram EST1030 is a fast, electrically powered loader with a 10 tonne capacity for unparal- leled productivity in mining operations. With its durable, easy-fill bucket, this loader is designed to work hard and last over the long haul. Even in the toughest underground environments, the operator enjoys a quiet, ergonomically designed cabin with safe, easy access to all service points.

Aftermarket

Service Tools Attachments • Service agreements and audits • Rock drilling tools • Products and working tools for • Supply of spare parts and • Exploration drilling tools demolition, rock excavation and components • Ground support tools recycling, such as breakers, cutters, • Midlife services, training, and pulverizers, grapples, magnets, other service products compactors, bucket crushers.

68% of orders received in 2020

Epiroc Annual and Sustainability Report 2020 15 THIS IS EPIROC Our value-creating strategy and the way forward

Operational Focus on attractive niches Innovation Aftermarket Outperformance excellence

Sustainability and a strong company culture are our foundation

We aim to be the clear market leader in selected attractive niches within mining and infrastructure

Focus on attractive niches Innovation Outperformance Attractive niches are those in which our We continue to invest heavily into Inno- To grow faster than the market with an technically advanced equipment and vation, securing that Epiroc remains the industry-best margin is what we mean aftermarket solutions are mission criti- technology leader. by outperformance. We can achieve cal for the customers. Safety, reliability this with our exposure to attractive and productivity have a significant Aftermarket niches, a strong foundation, and a strat- impact on success when drilling and We put a high focus on growing our egy focusing on innovation, aftermarket excavating hard rock. If we can help our aftermarket as it provides us resilience and operational excellence. customers to be successful, we will be over the cycle. With the aftermarket, we successful too. can make a difference for our custom- Of course, embedded in our strategy ers and remain the true productivity is also to create options for the future. Sustainability and a strong company and sustainability partner. For example by making acquisitions. culture are our foundation Our key criteria for acquisitions are Epiroc has a strong company cul- Operational Excellence stand-alone attractiveness, strategic fit, ture. With passionate employees and We relentlessly strive for operational synergies, and the potential to become leaders, we secure a high-performing excellence – to continuously improve or remain number 1 or 2 in the market. organization and remain the employer performance, efficiency and effec- Acquisitions will primarily be made in, of choice. Sustainability is embedded tiveness. We want to be the industry or close to, our core businesses. We in everything we do and our innovation benchmark. look to acquire businesses that can agenda is aligned with our customers’ enhance our technology leadership, sustainability agenda. We see sustain- our presence in the market and/or our ability as a competitive advantage and offer to the market. a driver of long-term growth.

16 Epiroc Annual and Sustainability Report 2020 THIS IS EPIROC

Our vision Our mission Dare to think new Drive the productivity and sustainability transformation in our industry

Our core values Innovation Commitment Collaboration We are creative, coura- We are committed We believe in geous and open minded, to meet and exceed close collaboration with the imagination expectations by staying with customers, to develop new ideas connected to our colleagues, partners and the initiative to customers, technology and other stakeholders bring them to market and the environment

Epiroc Annual and Sustainability Report 2020 17 OUR STRENGTHS AND GOALS Our strengths and goals

For 148-years, we have relentlessly focused on helping our customers to achieve improved safety and higher productivity. This has made us to one of the leading global suppliers within our niches.

We are a leading We drive the future productivity and in intelligent mining sustainability partner and infrastructure in attractive niches Read more on pages 26-29. Read more on pages 20-23. We have a strong We have a high and proven proportion of operating model recurring business Read more on pages 30-31. Read more on pages 24-25. We create value for our stakeholders Read more on pages 32-33.

Financial goals

Goals 2015–2020 2020 Epiroc’s goal is to achieve annual revenue growth of 8% over a 5% -12% business cycle and to grow faster than the market. Growth will Compound Revenue growth be organic and supported by selective acquisitions. annual growth rate

Epiroc’s goal is to have an industry-best operating margin, 18.9% 20.4% with strong resilience over the cycle. Average Operating margin operating margin

Epiroc’s goal is to improve capital efficiency and resilience. 25.4% 21.7% Investments and acquisitions shall create value. Average ROCE ROCE

Epiroc is to have an efficient capital structure and the flexibility BBB+ to make selective acquisitions. The goal is to maintain Epiroc is assigned a BBB+ long-term an investment grade rating. issuer credit rating with a stable outlook

Epiroc’s goal is to provide long-term stable and rising dividends 50%* The proposed dividend corresponds to to its shareholders. The dividend should correspond to 50% of 56% of net profit** net profit over the cycle.

* Average of dividend paid in the period 2019-2020 and the Board’s proposal for dividend for the fiscal year 2020. ** As proposed by the Board; A dividend of SEK 2.50. In addition, the Board proposes a distribution of SEK 3.00 per share through mandatory redemption.

18 Epiroc Annual and Sustainability Report 2020 OUR STRENGTHS AND GOALS Sustainability goals and KPIs

Epiroc has set a number of sustainability goals and key performance indicators (KPIs) to ensure that our business stays competitive and ethically sound – both in the short and in the long run. The full range of sustainability goals can be found on pages 34-49 and 138-145.

We use resources Epiroc 2030 goals responsibly and efficiently for people and planet Read more on pages 38-41. Health and safety Substantially reduce work-related injuries

Balanced workforce We invest in safety Double the number of women in and health operational roles Ethical: Walk the talk Read more on pages 42-43. Have all employees and business partners comply with Epiroc Code of Conduct Responsible Sales Assessment Process We grow together with implemented passionate people and Halve CO2 emissions

courageous leaders Halve CO2 emissions in operations Read more on pages 44-45. 90% renewable energy in own operations Halve CO2 emissions from transport Offer a full range of emission-free products We live by the highest Halve CO2 emissions from machines sold Require 50% reduction of CO2 emissions ethical standards from relevant suppliers Read more on pages 46-49.

Examples of sustainability KPIs

Focus areas KPIs 2016–2020, average 2020 We use resources Renewable energy from operations 59% 64% responsibly and incl. renewable mix, % of total energy efficiently

We invest in safety Lost-time injury frequency rate 3.2 2.0 and health (LTIFR)

We live by the highest Significant suppliers that confirmed 98% 99% ethical standards compliance with the Epiroc Code of Conduct, %

We grow together Leadership Index 70* 71 with passionate people and courageous leaders Women employees in the Group, % 15.6% 15.7%

* 2019-2020.

Epiroc Annual and Sustainability Report 2020 19 OUR STRENGTHS AND GOALS We are a leading productivity and sustainability partner in attractive niches

Boomer E2 The Boomer is one of our most sold face-drilling rigs. It is equipped with the award-winning RCS and delivers precision and productivity. It is also available with battery-electric drive train. A new generation, fully equipped for autonomous operations, will be launched in March.

20 Epiroc Annual and Sustainability Report 2020 OUR STRENGTHS AND GOALS

We provide equipment, services and consumables to customers in attractive selected niches in the mining and infrastructure market. Our equipment is primarily used in hard-rock applications. In such an environment, customers require reliable high-performance equipment as well as service and maintenance.

Leading productivity and sustainability partner Strong customer relationships Our customers prefer working with suppliers that have a track We go to market primarily through a direct sales and service record of high quality and reliability. The customer’s cost for network, which creates significant customer closeness and our equipment and services is a relatively small proportion contributes to our strong customer relationships. Approxi- of their total cost of operations, yet these are critical for the mately 85% of our revenues are generated by direct sales customer’s overall performance and productivity. As equip- interaction. ment often is utilized on a 24/7 basis, it can be very costly if Mining customers are often large with several production the equipment is not available. A stoppage can decrease the sites around the world, but there are also customers with customer’s production volumes. only one worksite. Sometimes mining companies use con- To ensure that we remain the supplier of choice, we tractors for mine development, production and/or explora- innovate and develop, together with our customers, solution. Mining customers extracting gold and copper represent tions that improve their operations. Other important aspects a large portion of our revenue exposure. are to be present, be quick in responding to customer needs Within infrastructure, we have a more diverse customer and to have qualified employees. We believe in close col- base, with both large global players and small customers, for laboration with customers to create strong and long-lasting example, contractors that own only one machine or hydraulic partnerships. attachment. Rental companies are also customers. Sustainability is another important aspect. It is a competi- Our top 10 largest customers accounted for 20% of rev- tive advantage and a driver of long-term growth. We want enues in 2020. None of the 10 largest customers dominates to enable a sustainable transition of the industry. Therefore, our revenues. we always keep safety and reduced environmental footprint Customers include Anglo American, Astaldi, Boliden, BHP, in mind when innovating. For example, our goal is to offer a Dragados, Freeport-McMoRan, Glencore, Goldcorp, Heidel- complete fleet of emission-free equipment by 2030 and by berg Cement, Hochtief, LKAB, Rio Tinto, Vale and Votorantim. 2025, we plan to have all our underground equipment with a Our customers are increasingly focused on driving syner- battery-electric option. gies by narrowing the number of equipment providers, which Besides close collaboration with customers and partners, benefits larger and more stable players, such as Epiroc. we also have our Sustainability Policy to guide us. Aligned with our Code of Conduct, we adhere to high standards Meeting our customers’ key challenges across the entire value chain. It includes respecting human Our customers’ key challenges include increasing produc- rights and taking a clear stance against corruption. tivity and equipment utilization while lowering costs. In addition, our customers put great emphasis on enhancing health and safety conditions and improving environmental performance in their operations. Our offering helps our customers to increase productivity in a sustainable way. We put great efforts into automation, digitalization and electrification, which enable disruptive and successful solutions.

Collaborate with the best We collaborate with several equipment and service providers, technology companies and universities to drive further innovation in the industry. Examples of collaborations are with Ericsson for 5G technology, Orica for a semi-automated explosives delivery system, ABB for electric drive trains, Northvolt for batteries, and Saab Combitech for information management systems. We are also engaged in the projects European Sustainable Intelligent Mining Systems (SIMS) and Sustainable Underground Mining (SUM).

We grow together with committed people and courageous leaders Being a relatively young company, creating a unique identity is an exciting task with rich possibilities. We see ourselves as a dynamic company with a vast experience and our values - innovation, commitment and collaboration - clearly define the way we work. Our employee survey that was conducted at the end of 2020 showed that Epiroc is an appreciated employer with engaged employees. Despite the pandemic, the engagement level rose and remained above external benchmark levels.

Epiroc Annual and Sustainability Report 2020 21 OUR STRENGTHS AND GOALS

Infrastructure market Attractive global niches Population growth, urbanization and sustainability are only a few of the long-term drivers for growth in the infrastructure Epiroc has a wide range of customers, of which most market. In addition, low interest rates encourage further are found within mining and infrastructure. On a global growth in infrastructure investments. There is a significant scale, both markets are large; however, Epiroc focuses on, pipeline of large infrastructure projects globally, such as new performance-critical niches in hard rock excavation. The railways, bridges and roads. Another positive trend within equipment and services we provide represent a rather infrastructure is demolishing and recycling, which benefit the small part of the customers´ total cost of operations, yet demand for Epiroc’s hydraulic attachments tools. they play a vital role in customers’ production. The value of having productive equipment running or, conversely, the Strong position in a competitive environment cost of standstill is much higher than the marginal extra With our innovative, safe and sustainable solutions, we cost of premium quality equipment and knowledgeable have established a strong value position to our customers. and efficient service people. To put it simply, we want to be Our niches in the value chain tend to be characterized by in niches where we can make a positive difference for our relatively higher scale and technological capabilities. This customers. means that barriers of entry are quite high due to complexity of products and service. In general, our markets are relatively Mining market consolidated with a limited number of large competitors on In the coming years, the expected increase in production of a global scale. commodities such as gold, copper, platinum and nickel is A main equipment competitor is Sandvik, which we meet expected to support the demand for Epiroc’s products and within drilling, loading and hauling in hard-rock environ- services. ments. Other competitors include Caterpillar in the market The increased extraction of ore should increase demand for underground loading and haulage and open pit mining for new equipment as well as for consumables, mainte- equipment, Furukawa in surface drilling equipment and nance, refurbishment and overhaul; collectively known as the hydraulic attachments, Boart Longyear for exploration drill- “mining aftermarket”. ing equipment and rock drilling tools, and Komatsu in the The aftermarket potential depends on total fleet of equip- market for underground and open pit mining equipment and ment in operation as well as on equipment utilization levels. hydraulic attachments. We also compete with several play- The equipment is frequently used in harsh environments, ers operating locally, regionally and in certain niche areas. which drives the need for maintenance, and replacement In general, the competitive landscape for consumables, of parts and consumables. Higher utilization also drives the i.e. rock drilling tools as well as for hydraulic attachments is need for maintenance and replacement of equipment to more fragmented than the market for equipment, with several safeguard productivity. smaller or local players focused on individual products. The aftermarket needs tends to be recurring and rela- For service and maintenance, the customers often tively stable through the business cycle, and generally less have own resources, but we also compete with third-party discretionary than capital expenditure on equipment. suppliers.

Well-positioned in attractive niches

Mining Hard-rock exposure (Orders) Infrastructure

Infra- structure 24%

Mining 76%

• Large customers Gold, 23% Copper, 21% • Large number of customers • High expenditure per customer Iron, 11% Nickel, 4% • Lower expenditure per customer Zinc, 3% Coal, 3% • Equipment remains in the mine • Equipment moving from worksite Platinum, 2% Others, 9% only moving within the site to worksite • Continuous operations • Project-based business

22 Epiroc Annual and Sustainability Report 2020 OUR STRENGTHS AND GOALS

Declining ore grades Attractive market trends Ore grades, which measure the percentage of the mineral content in ore, have steadily declined historically. For The long-term trends within our niches are character- copper, as an example, the decline in ore grades has ranged ized by structural growth. A growing global population, between 1-3% during the last 30 years. The decline in ore urbanization trends and strong focus on electrification grades requires more rock to be excavated for any given create underlying demand for increased rock excavation quantity of a mineral, which increases the demand for our and extraction of minerals. Our customers meet several equipment, services and solutions. challenges in excavating, such as declining ore grades and trends towards underground mining – with lower produc- Shift towards underground mining tivity as a result – and an increasing focus on safety and Underground mining is growing and increasing its share, sustainability. especially in commodities such as gold and copper. Declin- ing ore grades, deeper deposits and (in some geographies) a A growing world regulatory push for underground over open pit, contribute to Our markets are structurally underpinned by a growing pop- the growth of underground mines. In addition, underground ulation and economic expansion. Population growth implies mines are going deeper, on average 30 meters every year, higher consumption of capital goods and services while which increases the demand for underground mining equip- urbanization will drive investments in, for example housing, ment further. Deeper mines also increases the demand for hospitals and infrastructure. improved safety solutions, automation and battery-powered Together, population growth and urbanization will drive equipment. demand for metals and minerals and infrastructure investments, such as railways, bridges and roads. This, in turn, is Strong focus on safety and sustainability expected to support demand for our products, services and There is a strong focus on improving safety conditions for solutions. employees within mining and infrastructure. For under- In addition, the strong electrification trend drives the ground extraction, this becomes even more evident. In addi- metal demand further, particularly for copper and nickel. tion, society, as well as our customers, have a strong focus on environmental responsibility and have high ambitions on Increasing challenges to meet demand reducing environmental impact. Customers seek to reduce While demand is growing structurally, the complexity and emissions, noise, waste and other negative impacts on the costs of excavating hard rock are increasing. As a starting environment and society. Another strong trend is demolition, point, the utilization rates of equipment in mining is low com- recycling and life-cycle solutions. pared to other industries. In an underground mine for example, utilization rates can be below 30%. Customers therefore We provide the right solutions! seek higher productivity and lower cost of operations. This We provide safe and sustainable solutions, increased pro- leads to an increased demand for more advanced equip- ductivity and we lower total cost of ownership for our cus- ment and solutions. Examples of requested solutions are tomers. Read more on how we lead the shift in our industry automation, increased connectivity and monitoring, including towards intelligent mining and infrastructure on page 26-29. data-driven service.

Attractive market trends

A growing world... Increases the underlying need for infrastructure and minerals

We have a strong position and the ...with increasing challenges to right solutions to meet the customers’ meet demand... challenges Driving cost of hard rock excavation Safe and sustainable solutions, increased productivity and lower total cost of ownership

...and strong focus on safety and sustainability

Epiroc Annual and Sustainability Report 2020 23 OUR STRENGTHS AND GOALS We have a high proportion of recurring business

Our aftermarket offering safeguards safety and productivity for our customers. We supply spare parts, consumables, maintenance, training and more. In 2020, the aftermarket revenues represented 68% of our revenues. It is a growing and recurring business over time.

A broad aftermarket offering Installed base and potential for further growth Given that our equipment often is mission critical to custom- Customers’ spending on consumables and services tends to ers, a rapid response time and highly skilled and dedicated be recurring and relatively stable over the cycle. In periods service technicians are key to success. As much of the when capital expenditure is reduced, maintenance and operations performed by the equipment is demanding, the overhaul of equipment is even more important safeguard consumption of spare parts is high and some tools can even productivity. be changed at daily intervals. Availability and trust are impor- We have a large installed base of equipment in harsh tant success factors. Our customers need to know that we environments with significant maintenance requirements as are there for them and that we can provide the aftermarket a result. The average equipment age in our installed base solutions they need, when they need it. is about seven years and approximately 25% of the equip- Our aftermarket business employs more than 70% of the ment is older than 10 years. As the equipment gets older, the total Epiroc workforce. To have experienced employees with demand for maintenance and service increases, as do the technical know-how who work in a safe way is important to demand for solutions such as mid-life upgrades. us and we prioritize investments in the aftermarket to safe- In 2020, Epiroc catered to about half of the installed base guard an excellent service organization. of equipment. By having an increased number of connected

Examples of premium products in Tools & Attachments

Hydraulic breakers Combi cutters for Drum cutters for hard Magnets for picking for demolition demolition material profiling up scrap metal

Broad aftermarket offering Aftermarket revenues

Spare Service Midlife Rock Hydraulic parts and agreements services, drilling attachments components and audits training, and tools other service products

Service Tools & Attachments 43% 25% of revenues in 2020 of revenues in 2020 Reported in Equipment & Service Aftermarket revenues, MSEK

24 Epiroc Annual and Sustainability Report 2020 OUR STRENGTHS AND GOALS

machines, working more systematic with servicing the cus- Rock drilling tools include, for example, drill bits and drill tomers, as well as continuing with our supply-chain improve- rods for drilling in underground and surface applications. ment program, we can service a higher share of the installed Exploration drilling tools are used for exploration. base in the future. Rock-reinforcement systems are used for efficient rock support in mining and infrastructure applications. Service Service and spare parts are an essential part of our offer- Hydraulic attachments ing. Our service organization focuses on spare parts supply, Applications in hydraulic attachments include rock breaking service, support solutions and training. The spare parts are and excavation, demolition of buildings, asphalt, concrete often proprietary. and steel structures, separation of material, recycling and Service is available for the complete range – from cus- waste handling. The hydraulic attachment tools are used for tomers that require Epiroc staff constantly on site - to those excavators and other carriers by customers active in con- that take care of the equipment themselves, and only need struction, demolition, recycling and mining. technical advice or training support. We offer a wide range of service agreements and service Sustainable aftermarket products, e.g. remanufacturing and midlife services, solu- Our aftermarket solutions provide sustainability gains for our tions that extend the life of a component or a complete customers. The maintenance and spare parts aim to increase machine. In addition, we offer upgrades and conversion kits productivity to our customers and can also prolong the life that add additional features or improvements to specific of the equipment. A mid-life upgrade can for example both equipment, such as connectivity and batteries. prolong the useful life and increase efficiency. We collaborate closely with our customers to safeguard Our rock drilling tools are durable and efficient, which that we deliver the service and the solutions that match their means that they last long and drill fast. This leads to more maintenance strategy and vision. meters drilled per hour and lower costs for production. In addition, our hydraulic attachments are important for Rock drilling tools a more sustainable society as they many times are used in We provide an extensive range of high-end consumables recycling. for rock drilling, exploration drilling and rock reinforcement. The rock drilling tools are primarily attached to rock drilling equipment and can be used on both Epiroc and other manufacturers’ equipment.

Tophammer rock Down-the-hole Rotary drilling tools Rock-reinforcement Exploration drilling tools hammers and drill bits systems consumables

Keys to aftermarket success

Presence Efficient Technical Focus People and supply chain know-how leadership

Presence is vital and a Our supply-chain Our service technicians In line with our decen- Highly skilled and competitive advantage. improvement program are specialized and tralized operating dedicated service We have a global for parts and consum- have deep knowledge model, we have ded- personnel supporting presence, supporting ables will improve avail- about the equipment, icated and focused our customers. our customers in more ability, reduce costs and its applications, data, organizations for the than 150 countries. inventories. and digital solutions. different areas of the aftermarket.

Epiroc Annual and Sustainability Report 2020 25 OUR STRENGTHS AND GOALS We drive the future in intelligent mining and infrastructure

Our committed employees drive continuous innovation to provide safe and sustainable solutions that lead to higher productivity and lower total cost of ownership for our customers. We believe that technologies such as automation, digitalization, and electrification play a vital role to achieve this.

26 Epiroc Annual and Sustainability Report 2020 OUR STRENGTHS AND GOALS

Battery-electric vehicles improve industry, we can guarantee optimal performance. We are workplace health, reduce emissions proud to offer the world’s first battery intended for the and lower ventilation cost mining industry with CE Certification, Low Voltage Directive, We offer a broad range of battery-powered equipment for Electromagnetic Compatibility (EMC) directive and the Radio underground applications. There are clear benefits for the Equipment directive. customer to go with electric equipment. They save cost on Another positive thing with our battery solution is that ventilation; reduce their greenhouse emission gases and the batteries are easily swappable. This enables continuous improve the health of their employees. operations and reduces the need for costly investments in Electric motors also offer high efficiency and lower tem- electric cables and grid network for the customer, as the peratures and require less maintenance compared to their existing installation is sufficient. diesel equivalents. This means increased productivity and lower costs for our customers. Batteries as a Service We have launched a solution that provides all the benefits of High ambitions electrical power, but eliminates the risks of owning batteries. Electrification is however nothing new for us. Most of our We call it “Batteries as a Service”. underground drill rigs have been electrified for many years We take full responsibility for the batteries, from certifi- through cables, and in 2016 we launched our first fully cation to maintenance plus technology upgrades, using a battery-electric machines. truly circular business model. We make sure that the battery Looking forward; by 2025, we plan to offer a complete has the required capacity for the application, we keep track range of battery-powered underground equipment and by of the battery performance and we replace batteries when 2030, we have a goal of providing a full range of equipment needed. with a battery option. The customers do not need to buy the batteries, or even lease them, but instead purchase the battery operation Epiroc batteries service for the electric vehicle. The batteries can be used in Our batteries are designed with modularity and safety in both Epiroc and other manufacturers’ equipment. mind, ensuring that each individual part of the battery can be monitored and controlled separately. This allows for tailor- Battery retrofit made setups and easy maintenance. The rugged and robust We also offer battery retrofit for existing equipment, in which design makes it perfectly suited for any operation; under- the diesel engine is replaced with an electric equivalent. The ground or on the surface. retrofit offering starts in 2021 with the ST1030 loader and will By utilizing technology first intended for the on-road gradually be rolled-out to more models.

Customer example

Battery-electric: Standing the test

Epiroc and mining company Agnico Eagle have had battery-powered machines in the Kittilä mine in Finland since April 2019 – and things are looking good for the future of emission-free equipment.

The Epiroc equipment in Kittilä plays an important role in the testing of battery- powered equipment in an operational mining facility. Focus has been on productivity, operational performance and energy consumption, as customers demand that battery-electric vehicles works as well as vehicles with diesel engines.

And the outcome? The feedback from operators who have participated in the testing is very positive; no one misses the old diesel machines and the equipment works well. The charging of the equipment has worked well, too, and the existing electrical installation is enough to support the charging stations.

Epiroc Annual and Sustainability Report 2020 27 OUR STRENGTHS AND GOALS

Automation strengthens safety, increases The automation journey productivity and lowers cost To capture the potential of automation, one has to take one We offer solutions for automation covering a broad spectrum step back and see it as a customer journey. Some custom- of equipment and applications including drilling, loaders want to start their journey with less sophisticated, yet ing and haulage. Automated machines are connected to a productivity-enhancing solutions. We lower the hurdle and traffic management system, with the operators monitoring bring our customers on the “journey” by providing a wide the entire fleet of equipment and giving instructions to the range of solutions. See the illustration “Increasing levels of machines on what tasks to perform. We have an OEM-agnos- machine automation” below. tic approach and our system has proven successful in connecting other equipment suppliers’ vehicles at several mines.

Increasing levels of machine automation

Mixed fleet automation Fleet automation Multi machine MINE automation INSIGHTS Single machine MINE automation INSIGHTS Tele-remote MINE INSIGHTS Onboard MINE operator assist INSIGHTS functions MINE INSIGHTS

Customer Going beyond automating examples own equipment

Epiroc and ASI Mining have delivered a safe and interoperable solution for Roy Hill’s mixed truck fleet in Australia, with an ability to expand to other vehicle types and manufacturers. In the next phase, as much as 300 assets can be connected to the autonomous system. This will be one of the largest deployments of mixed-fleet automation globally. A very strong example of how Epiroc’s automation solutions take a customer’s operation to the next level, with increased safety and productivity as a result.

28 Epiroc Annual and Sustainability Report 2020 OUR STRENGTHS AND GOALS

Examples of solutions within automation, towards increased productivity and automation. Via a user- information management and digitalization friendly web portal, Certiq provides real time production data, both for individual units and entire fleets. The system provides 6th Sense – smart, safe and seamless a total overview and can also handle maintenance planning. 6th Sense is our offering which optimizes customers’ processes by connecting machines, systems and people using Mobilaris – situational awareness automation, information management and system integra- Our Mobilaris solution enhances safety, productivity and tion. It provides many advantages, such as tracking and smooth traffic flow underground. It provides drivers and responding to real-time working conditions and equipment operators with real-time situational awareness of all vehicles needs, leading to higher production at lower operating costs. and personnel. Mobilaris enables easy navigation and It was launched in 2019 and has already resulted in signifi- avoidance of traffic congestions and, in case of an evacuation cant market attention and multiple orders. event, instant directions to the closest exit or rescue chamber. It can also track assets from different manufacturers, integrate Epiroc rig control system operational data, and use real-time information to make The Epiroc rig control system (RCS) provides the machine accurate decisions, all to improve productivity and efficiency. operator full control over the machines. With RCS, drilling, loading and haulage can be controlled and monitored ASI Mining – Autonomous solutions from the cabin or a safe place, such as in a remote location. Epiroc and ASI Mining offer on-board hardware and Today, all of our most advanced equipment for mining software that convert vehicles to autonomous operation, and infrastructure applications is equipped with RCS. as well as a software platform for command and control of autonomous fleets across various mining applications. The Information-management solutions solutions can be integrated with various mobile equipment, We lead the development of mining information regardless manufacturer or model. The ASI Mining solutions management solutions. These solutions are developed enable higher productivity and improved safety. based on customer insights and data-driven analysis from customers all over the world. We continuously My Epiroc – track everything, act anywhere develop our offering in close collaboration with With MyEpiroc, which is a platform-independent solution our customers. Certiq and Mobilaris are examples working on any computer or mobile device, customers of our information-management solutions. have instant access to all the machine data. It provides current operational status, performance and location. It Certiq – a telematics solution also identifies replacement needs and the customer can Certiq collects, compares and communicates vital order spare parts and tools directly through MyEpiroc. equipment information and is an important building block

Automation for mixed Technology boosts fleet underground mucking rate

In Australia, Epiroc and Newcrest Mining have successfully Hudbay Minerals in Canada needed to lower the number of hours managed to deploy one of the first underground autonomous spent moving ore, while reducing variability in the number of mixed-fleet solutions in the world at a major block-caving mine. buckets mucked per stope per shift in their 777 zinc-copper mine. Not only the Epiroc ST18 loaders are autonomous, but also the Therefore, they launched a three-month pilot project in partnership machines from another equipment supplier. The underground with Epiroc to determine whether Mobilaris Mining Intelligence conditions are demanding. The fully autonomous and unmanned could make a difference. And it did. Tracking equipment from 25 loaders are targeted to run 25–26 km/h speed underground, access points at increased the mucking rate by 7%. Hudbay is now while having only 30 cm margin to the sharp hard-rock tunnel also planning to install Mobilaris at Lalor, its gold-zinc mine. walls on each side.

Epiroc Annual and Sustainability Report 2020 29 OUR STRENGTHS AND GOALS We have a strong and proven operating model

We have a focused and decentralized organization with the ability to adapt quickly and effectively to changes in demand. Our resilience builds on a high degree of direct sales, a large aftermarket business, a flexible and asset-light manufacturing philosophy and a sharp focus on innovation.

Focus and decentralization application knowledge and our service technicians support Our organization is based on the principle of decentralized our customers – all over the globe – in achieving improved responsibility and authority, which is a facilitator for quick productivity and increased sustainability. decision-making. We have two reporting segments and five We are a leading global supplier in our niches and that divisions. Each division is responsible for the global opera- comes with a responsibility. One of our focus areas within tions within their offering. sustainability is to “live by the highest ethical standards”, In order to safeguard economies of scale and efficient which we also aim for when it comes to our sales generation. processes, and to facilitate collaboration, a number of cross- Therefore, we continuously improve our Responsible Sales divisional councils have been established in R&D, market- Assessment process. ing, production, purchasing, people and leadership, finance, SHEQ (safety, health, environment and quality), and service. Strong aftermarket business We have a substantial installed base of equipment in harsh High degree of direct sales environments, which requires frequent maintenance, as well We generate sales in more than 150 countries and we go to as replacement of tools and attachments. market primarily through a direct sales and service network, Customers’ spending on consumables and services which contributes to strong customer relationships. tends to be recurring and relatively stable over the cycle. Approximately 85% of our revenues are defined as “direct” As an example, when capital expenditure is reduced during and we have customer centers in more than 60 countries an economic downturn, maintenance, refurbishment and Local presence is important as demand can vary greatly overhaul of equipment is even more important to extend between markets and different equipment usage. equipment life. Our equipment is sold by sales engineers with strong

Strong and proven operating model

Focus and High degree Strong services Flexible Sharp focus decentralization of direct sales business manufacturing on innovation

Quick and 85% direct sales Aftermarket 75% of product Leadership in efficient represents ~2/3 cost for equipment automation, decision-making of revenues is purchased digitalization and electrification

30 Epiroc Annual and Sustainability Report 2020 OUR STRENGTHS AND GOALS

Flexible manufacturing A major advantage with working with partners is that we Our asset-light manufacturing and logistics setup has been can leverage their innovations and continuous improve- organized to enable fast and effective adaptation to changes ment in the material and components they provide to us. in demand. The manufacturing of equipment is primarily Of course, we have the same high ethical standards when it based on customer orders. comes to our suppliers as we have on our own operations. The majority of the production cost of equipment, Beyond suppliers, we also collaborate with a number of approximately 75%, represents purchased components, service providers, technology companies and universities to while approximately 25% represents internally manufactured drive further innovation. Some examples are Ericsson, ABB, core components, assembly cost and overheads. Saab Combitech and Orica. Our in-house production consists mainly of producing To save time to market and ensure that we critical core components and assembly. As the majority have the best technologies available, we also of the production is conducted by suppliers, the produc- invest in technology companies, for exam- tion of equipment is flexible and can quickly be adjusted to ple Mobilaris (real-time positioning) and ASI volume changes. Mining (autonomous solutions).

Sharp focus on innovation A key factor for success is our ability to develop new and innovative products that serve the customers’ needs. Collaboration is vital for success. Both our purchasing organization and our service organization are involved in the development process in order to find suitable suppliers and the right components.

Minetruck MT65 Minetruck MT65 is a high-capacity underground truck, engineered with smart features to ensure high productivity in larger underground mining and construction operations.

Focused and decentralized businesses

Tools & Equipment & Service Attachments

Surface Underground Technology Parts & Tools & & Digital Services Attachments

Develops, manufactures Develops, manufactures Coordinates and Provides a complete Develops, manufac- and markets a wide and markets a wide range develops technology range of services with tures and markets range of rock drilling of tunneling and mining solutions, and provides the aim of maximizing rock drilling tools and equipment for use in equipment, including drill specialist consulting and customers’ productivity. hydraulic attachment surface mining, explora- rigs, loaders, mine trucks engineering services. The division focuses tools. The products are tion, construction, quar- and ventilation systems, The division drives the on spare parts supply, used for rock excava- ries, as well as water for underground applica- automation, digitaliza- professional service, tion, mining, construc- well and oil and gas tions worldwide. Focuses tion and interoperability support solutions and tion, demolition and applications worldwide. on innovative product expansions for Epiroc. training recycling. The division design and aftermarket also provides related support systems for service. added customer value.

Epiroc Annual and Sustainability Report 2020 31 OUR STRENGTHS AND GOALS

We create value for our stakeholders

We create value for our stakeholders by conducting responsible business while aiming to achieve sustainable profitable growth. A responsible business is fundamental in our customer offering and helps us attract and keep motivated employees.

Attractive market trends Resources and input

A growing world increases Natural the need for infrastructure 146 GWh total energy use and minerals Growing population Financial Urbanization MSEK 43 886 in assets Electrification MSEK 1 032 in R&D expenses

Increasing challenges to Intellectual meet demand driving cost 7% of employees working with of hard rock excavation Research & Development Declining ore grades 70% of employees involved in Shift towards underground mining aftermarket solutions

Strong focus on safety Human (average) and sustainability 14 012 employees 1 194 additional workforce

32 Epiroc Annual and Sustainability Report 2020 OUR STRENGTHS AND GOALS

Strategy, foundation and operating model Created value

Strategy for value creation Customers We focus on attractive niches and outperformance. The Safe and sustainable solutions that lead to higher productivity way forward is defined by innovation, aftermarket and and lower the total cost of operational excellence – of which all rely on a foundation operations of sustainability in everything we do and a strong company culture. We will also create options for the future. Shareholders 33.6% total shareholder return (A share) 22.7% return on equity Proposed distribution to share Focus on holders of MSEK 6 633, or Operational Out- attractive Innovation Aftermarket SEK 5.50 per share excellence performance niches Employees Salaries and remuneration to Sustainability and a strong company employees of MSEK 7 881 culture being our foundation Reduced lost-time injury frequency rate

Society Strong and proven operating model Commitment to long-term targets 2030 Focus and decentralization Contributing to a low-carbon High degree of direct sales society Strong service business Payments of income tax Flexible manufacturing Local purchasing in communities Sharp focus on innovation where Epiroc operates

Business partners Long-term relations and business opportunities for a large number of suppliers and distributors

Epiroc Annual and Sustainability Report 2020 33 SUSTAINABILITY Our approach to sustainability and corporate responsibility

We see sustainability as a long-term growth driver. In 2020, we further strengthened our sustainability agenda. We defined long-term goals for 2030 to equip us for a fast- evolving business landscape. This ambition will set the tone of our approach for years to come and we want to drive the future in intelligent mining and infrastructure.

The Covid-19 pandemic reinforced for us the importance employee health and safety conditions thanks to solutions of sustainability integration into our sector and business. In that enable more autonomous operations as well as remote 2020, Group Management continued to set Epiroc’s sustain- control functionality, mechanization and battery technologies. ability agenda and the level of ambition for our 2030 goals. We need to strengthen our influence over decisions As a top management imperative, Group Management will beyond our direct control – from suppliers to customers as continue to formulate and integrate sustainability and corpo- this is where our largest climate, human rights and safety rate responsibility strategies, targets and activities. Our 2030 impacts lie. Business disruption caused by the Covid-19 pan- goals not only reflect our contribution to the UN’s 17 Sustain- demic has made the task of face-to-face interactions with able Development Goals as they relate to our business, but customers and suppliers even more challenging. Another also reflect our commitment to help accelerate the imple- challenge for our customers is that they need to have access mentation of Agenda 2030 and the Paris Agreement. to renewable electricity if they are to reduce their climate impact. Innovative, safe and sustainable Beyond CO2 reductions, our range of water-well drill rigs solutions are key for us exemplifies how our product offering can help tackle other Innovative, safe and sustainable solutions for increased sustainability challenges, such as access to water. During the productivity are crucial to our long-term growth. Through year, we received a significant order for drill rigs in Eastern innovation, automation, digitalization and electrification, we Africa. are achieving measurable environmental and safety gains. We also provide essential tools for urban mining and Most important, we continue to reduce the CO2 impact from “batteries as a service” as part of delivering on our role in the product use. Sales of low-carbon alternatives, digitaliza- circular economy. In the shift to a new, low-carbon economy tion and automation have grown, especially through our where electrification, circularity, and development of new 6th Sense range of automated and connected products. technologies, will play an important role, our products and By 2030, we intend to halve CO2 emissions generated from services will be a key contributor for our customers. machines sold compared to machines sold in 2019. Our underground drill rigs are powered by electricity Task Force on Climate-Related during drilling. Our battery-electric equipment also uses Financial Disclosures (TCFD) electricity for tramming. We offer a range of battery-electric The TCFD requires companies to report on their short, underground loaders and trucks, all of which enable zero- medium and long-term climate-change risks and increase emission operations, provided renewable energy is available transparency on related actions to tackle them. We address for charging. For surface operations, our electric and energy the TCFD as part of our risk management process, see p. 144. efficient drill rigs features significantly reduce CO2 emissions Further information on how we work and measure impacts and fuel consumption. in energy, CO2 emissions, materials, waste and water Innovation leadership in intelligent mining and infrastruc- consumption in water-scarce regions is included. As a next ture requires a collaborative approach with customers and step, we will develop targets and metrics aligned with TCFD other industry leaders. Through our extensive offering, we guidelines. provide safe, efficient and low-carbon solutions that reduce We are also monitoring and working towards imple- the environmental footprint and meet customer demands menting the EU Taxonomy regulation. We will continue to for safe and sustainable solutions, which also contribute to communicate our role in the shift to a low-carbon economy, reduce the negative impact on biodiversity. including progress on our CO2 reduction targets and growing We believe sustainability creates a competitive advan- customer engagement in our circular economy offering. This tage. For this reason, we are investing heavily in R&D and means that our investors will be able to place our ambitions are industry leading in battery-driven solutions. Although within the spirit of the EU Taxonomy as it evolves. these still represent a small share of sales, they are a growing part of our business. Remote machine operation is also Guided by a strong corporate culture a core competency for Epiroc. Acceleration of automated Safety is deeply embedded into our culture. During the year, and digitalized solutions helps us create low-carbon and we continued with the three-year behavior-led SafeStart® safer workplaces. program to improve all employees’ awareness of what is leading to accidents and injuries to be able to change their Capturing opportunities and managing risks behavior both at work and in their spare time. We see proof Achieving strategic sustainability in traditionally conservative of accident reduction in those entities where SafeStart® has industries is a challenge. However, customer priorities in sus- been implemented. tainability, efficiency and productivity help drive our agenda. We aim to inspire all employees and dialogue with cus- The more energy efficient the equipment is, the lower the tomers, employees and relevant stakeholders informs our operating costs. To meet customer expectations, we track our strategy and way of working. The Epiroc culture is charac- equipment’s energy performance. Our products also improve terized by our decentralized approach, based on freedom

34 Epiroc Annual and Sustainability Report 2020 SUSTAINABILITY

We use resources We invest in safety We grow together We live by the responsibly and and health with passionate highest ethical efficiently people and standards courageous leaders Focus areasFocus

CO2 emissions products Product safety Leadership Business ethics & Life cycle perspective Occupational health Diversity anti-corruption CO2 emissions and safety Employee care and Supply-chain operations empowerment management CO2 emissions transport Crisis management Human rights Material topics Material

Total energy use in Lost-time injury Women managers, % Significant suppliers, MWh/Cost of sales, MSEK frequency rate % that confirmed 21.0% (target 22.4%) compliance with the 7.1 (target 6.5) 2.0 (target 2.3) Epiroc Code of Conduct Women employees, % Renewable energy for Total recordable injury 99% (target 100%) (target 17.5%) operations, incl. renew- frequency rate 15.7% able of mix, % of total Significant agents, 4.8 (target 5.3) Leadership Index energy resellers and distributors, 71% (target 73%) %, that confirmed 64% (target 64%) Sick leave, % compliance with the 2.1% (target below 2.5%) Epiroc Code of Conduct CO2 emissions from transport (tonnes)/Cost of 72% (target 97%) sales, MSEK

KPI targets and performance 2020 performance and targets KPI 4.1 (target 4.4)

Note: No KPIs on Group level established for the areas life cycle perspective, crisis management, employee care and empowerment but management approach, activities and information provided within this report.

with accountability, and how we integrate sustainability We have global ISO 9001, ISO 14001 and OHSAS 18001 throughout the organization. Innovation and close collabora- certifications that includes 58 of our entities. A strong focus tion with our customers attracts the right people and builds on developing our global management system helps us a respected brand and reputation. The leadership Index from align on our priorities and to ensure we all work to improve our employee survey improved to 71 (69) in the year. performance. We aim to recruit from a diverse pool of talent. Attracting more women to our company and industry is imperative. In Progress on our journey 2020, 21.0% (19.3) of managers were women. We also defined The year saw us take our ambitions to the next level, includ- a 2030 goal to double the number of women in operational ing setting 2030 goals and adopting a roadmap for achieving roles. We need to dramatically change our approach, and the them. We focused on integrating sustainability deeper into 2030 target will help us get there. business operations and we established the Live Work Elimi- Many initiatives are in place, both locally and globally, nation program, merging the expertise of our service organi- that include dedicated actions to attract more women to zation and innovation team to fast-track safety improvements operational roles and to increase our inclusivity. They will be in electrical equipment and machinery operation. further strengthened going forward and include creating our During the year, we established a dedicated compliance Diversity & Inclusion Board, chaired by Epiroc’s CEO, in the function on Group level to strengthen our compliance pro- beginning of 2020, as well as cooperation with customers gram and we continued to raise awareness on compliance and external partners. throughout the organization. As in the past, we continue to measure progress through Guiding our approach short-term goals. These help us ensure that performance The Epiroc Code of Conduct (CoC), Sustainability Policy and improves year-on-year. Each target is defined to improve core values continue to guide our approach to responsible performance on our most relevant impacts. The Group’s con- business and employee actions. Epiroc is a signatory to the solidated targets on selected KPIs are presented throughout UN Global Compact, and we incorporate its 10 principles on this report. human and labor rights, environment and anti-corruption in In 2021, we will continue to follow the roadmap to achieve our policies and approach to sustainability. We commit to our 2030 goals and start reporting progress on them. address and integrate human rights in accordance with the From 2021, progress in relation to targets set in these UN Guiding Principles for Business and Human Rights. Our areas is part of the variable compensation for the Group Speak Up policy and processes support a culture where Management as well as other employees. issues and concerns are voiced, accountability promoted We will also look into the Science-Based Target (SBT) and trust built. Cases reported in the Speak Up system initiative and the possible alignment of our 2030 sustainabil- launched in 2019 grew and totaled 64 (44). As a learning ity goals. organization, we embrace the lessons that can be learned For more information and sustainability performance from the issues and concerns raised with us. metrics, see pages 138-145.

Epiroc Annual and Sustainability Report 2020 35 SUSTAINABILITY

Materiality

We use a materiality process to identify the topics that are identified to be most important. The formulation of these most relevant for Epiroc to work on. The process, conducted in KPIs was guided by GRI Standard indicators. 2017, helped us identify the sustainability areas where we can During the process of developing our 2030 goals in 2019 make the greatest difference and where impacts are the great- and 2020, we consulted with stakeholder groups through est. With this clarity, we are able to more effectively manage, surveys and dialogue to validate the outcome, revising monitor and communicate our approach to sustainability. our analysis as needed. Feedback from the process indi- Based on the outcome in 2017, we clustered our most cates increasing focus on both tackling climate change material topics into four focus areas and identified key per- – particularly among investors – and the importance of formance indicators (KPIs) for each of the topics to help us responsible business practices, safety as well as product measure their relevance and impact. Our KPIs help monitor safety. In addition, The Covid-19 pandemic has highlighted and address risks, opportunities and impacts of our busi- the importance of employee care. nesses in the parts of the value chain where they have been

Materiality Matrix

Business ethics Product Safety/ CO2 emissions products incl. Corruption Safety Life-cycle perspective High Supply- Chain Management Water Leadership Human rights CO2 emissions transport Diversity Taxes Employee care and empowerment Waste CO2 emissions operations Crisis management

Community engagement Cyber risks

Material topics

Biodiversity assessments and decisions and assessments Influence on our stakeholders’ stakeholders’ our on Influence Low

Low Medium High

Epiroc’s significant economic, environmental and social impacts

The Sustainable Development Goals (SDG) are an important UN milestone that sets the scene for ending extreme poverty, fighting inequality and injustice and protecting the environment. It is a 17-point plan that charts society’s response to 2030. Epiroc has a role to play in the effort to reach the SDGs by reducing negative impacts on people and the planet and by maximizing the value we deliver through our products and core business operations. We can make the greatest difference in nine of the SDG goals and their sub goals through our 2030 goals. Here is how:

1. We aim to contribute to ending all forms of discrimination 2-3. We aim to increase the share of renewable energy of women. We strive to increase the proportion of women and limit the use of energy overall in our operations. employees and managers and have set a target for 2030 We are developing more efficient products and bat- to double the number of women in operational roles. The tery-electric equipment that support low-carbon Diversity & Inclusion Board is one example of actions. alternatives.

1-2. We aim to strengthen local communities in improv- 2, 5, 7-8. We aim to contribute to higher levels of eco- ing water and sanitation management through our nomic productivity and decent job creation. By providing support of ‘Water for All’, an initiative founded by our safe and decent working conditions, we have the best employees. We also reduce water consumption in oper- opportunity to be a thriving company that contributes to ations, particularly in water-stressed areas. Water-well sustainable growth. drill rigs is part of our product offering.

36 Epiroc Annual and Sustainability Report 2020 SUSTAINABILITY Epiroc sustainability 2030 goals

Ambitious targets help align our organization to tackle 2030. We are thereby preparing Epiroc and our customers for important challenges head on and leverage our positive a low-carbon economy. impacts together. In 2020, we set 2030 sustainability goals By working to reach zero work-related injuries, we are that reflect scientific imperatives and that challenge us to taking safety from a vision to a tangible goal. In addition, we adopt an outside-in perspective, in support of our com- are transforming the company by doubling the number of mitments to the Paris Agreement and the UN Sustainable women in operational roles. All employees and business part- Development Goals. ners must comply with our Code of Conduct (CoC) and confirm that they understand and comply with it and work in accord- Through these absolute targets, we are also changing Epiroc ance with high ethical standards. The Responsible Sales for the better. We set goals of halving CO2 emissions from Assessment process shall be fully implemented by 2030. operations, transport and relevant suppliers. Since the major- These goals were set by Group Management, informed ity of our CO2 emissions occur in the use phase of our prod- by dialogue with stakeholders. The baseline year for most ucts, we decided to take on the challenge of reducing by goals is 2019 and the ownership of the goals lies with senior 50% the CO2 emissions generated by Epiroc machines sold in management. We will start to report on progress against the goals in 2021.

Safe, healthy, Halve CO2 ethical emissions

Safety and health Operations No work-related injuries Halve CO2 emissions in operations Balanced workforce 90% renewable energy in Double the number of own operations women in operational roles Transport Walk the talk Halve CO2 emissions from Have all employees and transport business partners comply with our Code of Conduct Products Responsible Sales Offer a full range of Assessment Process emissions-free products implemented Halve CO2 emissions from machines sold Suppliers Require 50% reduction of CO2 emissions from relevant suppliers

4-5. We aim to contribute to upgrading infrastructure 2-3, 5. We aim to contribute to reducing corruption and and retrofitting industries to make them more sustain- bribery in all forms and have zero tolerance for corrup- able, growing the market for clean and environmentally tion. A responsible sales assessment process is in place sound technologies with high-productivity products to ensure responsible sales. and services.

2, 4-6. We aim to generate less waste through preven- 16-17. We will collaborate in different industry networks, tion, reduction, recycling and reuse in our operations. partnerships and alliances. By mobilizing and sharing We reduce the use of fossil fuels and increase renew- our knowledge, expertise, technology and resources to able energy in operations. We are decreasing CO2 support the achievement of the Sustainable Develop- emissions from transportation. ment Goals in countries we operate.

3. We aim to halve our CO2 emissions in operations, transport, for relevant suppliers and in the use phase of our products to help tackle climate change. Our energy efficient and low-emission solutions support our customers achieve their CO2 emission targets and build capacity to meet climate change.

Epiroc Annual and Sustainability Report 2020 37 SUSTAINABILITY We use resources responsibly and efficiently Product innovation for

Epiroc’s key performance indicators sustainability

Epiroc customers want to improve their productivity and CO2 emissions from transport (tonnes)/Cost of sales, MSEK sustainability and to provide the safest possible working Target and outcome 2020 environment for their employees. Through our innovation focus on automation, digitalization and electrification, these imperatives go hand in hand.

Target: 4.4 Target: The future of mining and infrastructure are operations that are 4.1 CO2-free, digitalized and autonomous. We are a part of the solution to combat climate change by developing new and improved products and services that add value to our customers and address their need with low-carbon solutions. In 2020, our research and development expenses were MSEK 1 032 (1 035) which will help us achieve our sustainability ambitions. The majority of our customers’ equipment still runs on diesel and we work to reduce the CO2 emissions and Target for 2020 was 4.4 and the result was 4.1. The improve- increase efficiency. Since fossil-fuel dependence is likely to ment is mainly explained by a higher share of shipment by sea instead of air freight and to some smaller extent due to continue in our sector for some time, customers are reducing lower volumes because of the Covid-19 pandemic. their environmental impacts through investment in efficient technologies and efficiency measures. By providing advice and solutions that reduce energy use, we are lowering cus- Renewable energy for operations, incl. tomers’ total cost of ownership and simultaneously their CO2 renewable of mix, % of total energy footprint. Target and outcome 2020 Target: Target: Our open digital interface allows customers to track the 67 64 fuel consumption of their fleet. Data received improves equipment productivity through an enhanced service offering and new product features. We monitor real-time energy efficiency gains through connected equipment via our 6th Sense solutions. We also measure energy use in our major product families and the divisions measure energy efficiency gains and CO2 emissions on selected best-practice product development with performance indicators. See example, next page. Access to water is a key challenge around the world and water-well drill rigs are part of our product portfolio. During 2020, we received a significant order to secure clean water in Target for 2020 was 64% and the result was 64%. Continued high focus on sourcing of renewable energy especially for areas susceptible to waterborne diseases in Eastern Africa. our newly acquired companies will be a priority. A shift to automation, digitalization and electrification Total energy use in MWh/Cost of Sales, MSEK Battery technologies and connected equipment are two Target and outcome 2020 areas where we can add value and help drive the transition to low-carbon solutions. Demand for electric equipment is Target: growing, both for underground and surface applications, and Target: 7.1 especially for underground battery-electric vehicles. We 6.5 are also expanding our offering to include conversion kits to convert diesel equipment to battery-electric equipment. In the end of the year, the number of equipment delivered with connectivity features was 4 600 (3 600). Connectivity allows us to collect more data to further improve safety and productivity. Our 6th Sense offering, optimizes processes by connecting machines, systems and people. In 2020, we agreed to supply rock drilling tools with 6th Sense capability to Boliden Target for 2020 was 6.5 and the result was 7.1. MWh energy from operations has decreased, supported by several initia- Aitik Mine, in Gällivare, Sweden, one of the world’s most tives to increase energy efficiency. The ratio, MWh energy efficient open pit mines. from operations as percentage of Cost of Sales, has however increased, as Cost of Sales has decreased to a larger extent Epiroc is well positioned for the technological shift to and energy from operations is only partly correlated with Cost automation, digitalization and electrification – a shift that is of Sales. expected to be rapid over the next decade.

38 Epiroc Annual and Sustainability Report 2020 SUSTAINABILITY

SmartROC D65 surface drill rig – a winner for customers and the environment

If you are looking for a modern mine automated drilling and rod handling. spare parts and travels by service operation that puts a high focus on It efficiently drills high-quality blast technicians are needed. energy efficiency, safety and produc- holes with accuracy and precision. tivity, Newmont’s Peñasquito mine in A few years ago, the rig was updated During 2019, the SmartROC D65 rig Mexico is a good example. Located with an intelligent fuel-saving system. has been further improved. This con- about 780 kilometers northwest tinued evolution now has Epiroc’s of Mexico City, the open-pit mine For mine sites such as Peñasquito – innovative automation platform as its embraced automation already a few and for the planet – this translates into foundation. It includes features such years ago with Epiroc’s giant Pit Viper true industry-leading benefits, not the as the Auto Feed Fold, a new interac- drill rigs, taking the operation to new least on energy efficiency. For exam- tive touch screen and 8-meter pipes, levels of safety, productivity and effi- ple, the SmartROC D65 emits 34% which result in less rod changes and ciency. Now, the Peñasquito mine – less CO2 emissions per drilled meter more time drilling. The new hydraulic which produces gold, silver, lead and than the comparable FlexiROC D65 system, with fewer and more efficient zinc – has embraced sustainability rig. A rig like this may drill hundreds of pumps, also needs approximately 300 even more as it started using Epiroc’s thousands of meters of rock through liters less hydraulic oil and a minimal smaller SmartROC D65 drill rig. its lifetime, making a significant differ- number of hoses and connections. ence on the emissions over time. Besides decreasing the amount of The SmartROC D65 surface drill rig oil needed, this system also further was introduced to the market in 2010. The SmartROC D65 rig’s automated reduces the fuel consumption of the It became an instant success, espe- drilling and rod handling also means rig. All in all, an additional reduction to cially in the demanding mining appli- that drill bits and other consumables the environmental footprint. cations in Australia, but also in South wear out at a slower pace, and the America and Latin America, where it overall wear and tear on the machine As Newmont at Peñasquito and many is used in both preparatory work, like is reduced. This not only saves the others are realizing: the SmartROC D65 pre-split drilling, and regular produc- customer time and money, but also is a winner both for customers and the tion drilling. The SmartROC D65 is benefits the environment as fewer environment. packed with smart features, such as

Understanding impacts chain. See page 141 for more on our approach to monitoring It is important to note that batteries and electronic compo- and managing environmental and human rights risks associ- nents contain metals such as lithium and cobalt. The mining ated with conflict minerals. and end-of-life disposal of these components poses human Gaining access to sustainably sourced batteries in a fast- rights and environmental risks to workers and local commu- growing market is a challenge that we intend to meet in part nities. We work closely with electrical component and bat- through our strategic relationship with Northvolt, a Swedish tery suppliers, customers and innovation partners to achieve supplier of responsibly produced, high-quality batteries. transparency on our impacts in this regard across the value

Epiroc Annual and Sustainability Report 2020 39 SUSTAINABILITY Epiroc in a circular economy

Our circular approach by diesel engines. One example is our collaboration with Our equipment lasts for many years – at times longer than a Railcare and the launch in October 2020 of a battery-electric decade. Our services help ensure efficient operation regard- railway maintenance vehicle, to be used for rail maintenance less of age or application and extend equipment life. Midlife applications. services from Epiroc is a flexible service solution prolong- ing the lifespan of the equipment. It includes replacing old Recycling metals and minerals with new components extending the machines productive The importance of recycling metals and minerals is rising. lifetime. It can also include an upgrade with all the latest Urban mining reduces pressure on demand for primary raw technology options not only to increase productivity and materials and contributes to the reuse of valuable materi- safety but also making it possible for our customers to start als that would otherwise be wasted. It also reduces energy the automation journey by connecting the equipment and consumption and other negative environmental impacts monitoring machine data. In 2020, Epiroc extended the from traditional mining and mineral processing. The metals Midlife services product range to include Scooptram ST18 and minerals recycling market is growing at an even higher and Boomer M2C. pace than the underlying primary raw materials market. Epiroc Marketplace, first launched in 2018 in the US to We provide tools for metal and mineral deconstruction and support used equipment sales, continues to grow. The sales recycling through our Tools & Attachments segment. through the website more than doubled vs previous year, Another example is the closed loop recycling initiative in with 47% of listed equipment sold. Fagersta, Sweden. In collaboration with raw material suppliers and recycling companies, we have built a closed loop Batteries as a Service recycling system. This means that all scrap from production We are developing our “Batteries as a Service” offering to and stocks of finished goods is returned to the raw material support battery-equipped vehicles with a circular business suppliers, who then recycle it for the production of new raw model. Batteries as a Service covers everything from certifi- materials. Now 85% of the steel for the Fagersta production cation to maintenance and technology upgrade and the cus- site is scrap-based. According to our main supplier their tomer only pays for the use of the battery. The service lowers scrap-based steel generates approximately 80% less CO2 the threshold for replacing diesel machines with battery- emissions than ore-based steel. This equals to a total CO2 electric vehicles. Together with our supplier Northvolt, we reduction on 40 000 tonnes per year for the production in have developed a battery-electric technology platform that is Fagersta as well as reduced waste. modular and scalable, meaning all our batteries can be used in all different types of equipment. This allows us to adapt Collaboration our batteries to the needs of the specific equipment. For Our customers will need to dig deeper to access miner- example, in loaders, we need strong and powerful batteries. als and metals to meet market demand. Our ambition is to Once the battery gets less efficient with age, we can move it set a new world standard for sustainable mining at great to rock-reinforcement equipment or drill rigs, where power is depths. In pursuit of this aim, we are active partners in the important, but less is required. At the end of its life span, the Sustainable Underground Mining initiative together with battery can be used for power storage before it is recycled. our Swedish customer LKAB, various academic institutes Although the battery-electric technology platform is and other leading suppliers. We also participate in the EU designed primarily with the mining industry in mind, it is Sustainable Intelligent Mining Systems (SIMS) project, which also well suited for other types of machines that operate brings together mining companies, equipment and system in tough environments and that are traditionally powered suppliers and universities.

Recycling: We will recycle a Production: We will use one majority of the minerals in our of the world’s most sustain- battery cells, to be used in new able battery cells in our bat- batteries. teries, produced with the help of hydropower.

Use: Our large offering of battery-electric equipment Re-use: Used batteries from enables emission-free operations, mining equipment can still add supporting our customers to reach value in other applications. their sustainability targets.

40 Epiroc Annual and Sustainability Report 2020 SUSTAINABILITY Efficient operations

Epiroc takes a multi-tier approach to operational efficiency. our own electricity with solar panels. The Covid-19 pandemic We work to minimize energy use in production, purchase has, to some extent, also affected the reduced CO2 emis- renewable energy use in operations and to reduce trans- sions from operations. port CO2 emissions in the supply chain. Reducing CO2 emissions from transport Although our carbon footprint in manufacturing is lower than A share of our impact derives from logistics and transport. it is during the product use phase, we seek efficiencies on the We are making good progress in reducing CO2 emissions in manufacturing side. We are sourcing a high degree of renew- these areas. In 2020, our CO2 emissions from transport were able energy and this lowers CO2 emissions. 4.1 CO2 (tonnes)/Cost of sales, MSEK. Compared to 2019, we By 2030, we intend to halve our CO2 emissions from lowered the ratio with 8%. The reduction of the CO2 emis- operations, transport and relevant suppliers compared to sions came from an improved distribution network, reduc- 2019 levels. These are absolute targets that will become tion of air deliveries, expansion of ocean shipments and an more challenging to reach as the business grows. increased stock in the regions closer to customer. Through our Group-wide supply chain improvement pro- Reducing CO2 emissions from operations gram Excellerate, we are improving processes and regional- and increase renewable energy izing the global distribution network. This helps us use more Reducing CO2 emissions from operations is a continuous sustainable modes of transport and requires less expediting. focus for us. In 2020, our total energy consumption was 145 In fact, Excellerate is helping us cut air freight for parts 507 (161 331) MWh and 7.1 (6.8) MWh/Cost of sales, MSEK. and consumables by 40-50%. Sea shipments are less pollut- Compared to 2019, the ratio increased 4%. Lower energy ing than air freight. The shift away from air transport came used reduced our costs by MSEK 2.9. Total energy consump- despite the impact of the Covid-19 pandemic, which pushed tion decreased 10%. demand for expedited delivery. To achieve our target of a renewable energy mix of 90% by 2030, we are purchasing renewable energy (electricity and district heating) and we are investing in solar panel Our approach installations where we cannot increase the sourced renewable energy. So far, we have installed solar panels in our Each division maintains product responsibility. Products are developed in each division in close cooperation with operations in Hyderabad and Nashik in India and we are customer centers. Divisions are responsible for ensuring preparing more solar panel investments in other countries. that all facilities operate according to the Sustainability The renewable share in our energy mix has increased by 1 Policy and the Epiroc Way, including responsible and percentage point since 2019. efficient resource use. In 2019, we launched a more structured transition to The Epiroc Safety, Health, Environment and Quality renewable energy through a three-year energy efficiency (SHEQ) Council is tasked with overseeing environment at program. The program will improve energy efficiencies for Group level and initiate and drive Group programs, proj- production and distribution centers – primarily through ects and activities. investments in facility structures and type of energy sources. The Group deploys global ISO certification according It focuses especially on entities with a low share of renewa- to ISO14001:2015 for major units. For more information ble energy and where we need to change the type of energy about our management approach, see pages 140-141. we source and produce for example, going away from natural gas, buying renewable electricity district heating, or produce

Epiroc Annual and Sustainability Report 2020 41 SUSTAINABILITY We invest in safety & health

Product safety

At Epiroc, we innovate to put safety, health as well as Epiroc’s key performance indicators well-being at the forefront of our product and service offering - one example is Live Work Elimination.

Our mining and infrastructure customers work in challeng- Lost-time injury frequency rate (LTIFR) ing conditions that pose safety risks. For this reason, our equipment must operate at maximum productivity in all Target and outcome 2020 conditions without compromising safety. We work closely with customers in risk management, accident and incident reporting and change management to promote the right procedures among equipment operators and service technicians. Target: Safety lies at the heart of our innovation strategy. In 2.3 Target: 2020, we initiated our Live Work Elimination, a program with 1.7 a focus to further minimize injury risks to personnel such as operators and service technicians. Live Work Elimination identifies and removes the potential exposure to harm- ful energy during the maintenance and operation of any equipment as it can be contained in electrical, mechanical and pressurized systems among others. A collaboration between Epiroc’s customers, R&D and Service teams, Live Target for 2020 was 2.3 and the result was 2.0. A continued focus on safety with several preventive measures and activi- Work Elimination will be further developed in 2021 and this ties, including SafeStart®, contributed to the result. The program will also be key to future product development. Covid-19 pandemic also affected the result to some extent. Benefits of automation, digitalization and electrification We have developed autonomous and remote-controlled equipment that transforms operating conditions by remov- ing the operator from dangerous areas in the mine or at Total recordable injury frequency rate (TRIFR) the construction site. Safety is a key driver for the grow- Target and outcome 2020 ing demand for automation. Eliminating risks to workers in hazardous environments benefits everyone. Battery-electric underground equipment has no diesel fumes, no CO2 emissions, provided that renewable energy is available for charging, and generate less heat when Target: 5.3 in use and improve working conditions for people at the Target: worksite. 4.0 We monitor the field performance of our equipment and offer training and service to ensure safe equipment operation. We introduced a divisional key performance indicator for product safety to help track how we are living up to our commitment to product quality and safety. It measures the application of all critical safety campaigns globally. In 2020, we achieved 96% implementation, exceeding our 95% Target for 2020 was 5.3 and the result was 4.8. A continued focus on safety with several preventive measures and target from 2019. activities, including SafeStart®, contributed to the improved result. The Covid-19 pandemic also affected the result to Connectivity and awareness raising some extent. Epiroc uses 5G technology to deliver solutions for automation and information management that also keep people safe. We closely monitor safety standards, continuously integrate safety in our R&D processes and act on feedback from users to improve safety levels. We train service technicians in our equipment’s safety features and operators onsite to identify potential safety risks, improve processes and reduce risks.

42 Epiroc Annual and Sustainability Report 2020 SUSTAINABILITY

Reporting SafeStart® (injuries, risk obs. and more)

Standard Live Work Operating Elimination Procedures (LWE) (SOP) Operational safety

Personal Epiroc is a values-based company. Ensuring the well-being Protective Safety by choice Training and Equipment leadership of everyone who works for and with us is the core intention (PPE) Not by chance of every activity. A behavior-led approach engages every- campaigns one in our efforts.

With the launch of the 2030 safety goals, Group Manage- Risk Safety ment reaffirmed its commitment to safety in 2020. Before zero assessments instructions accidents was our vision. With the 2030 safety goal, it has become our target. The 8 safety Safety High standards on safety and well-being create trust and commitments share help to drive higher productivity. In 2020, we implemented several initiatives to raise awareness, address potential hazards and further improve safety across the board – particularly focused on influencing behavior and increasing accountability. Epiroc Safety Toolbox – this is how we work with safety Behavior-led approach Communicating expectations and improving procedures help elevate safety standards. SafeStart® – our program to engage all employees to improve their personal safety equipment if they are competent, licensed and authorized to awareness – completed its first year Group-wide. Its mission do so, to respect safety distances, and to care for their own is to entrench a global safety perspective with strong local well-being and that of their colleagues. input. This means changing behavior, a task that at times requires us to overcome different cultural barriers. Continuous improvement Higher risk awareness can reduce human error that leads We are moving in the right direction. Work-related injuries to accidental injury or close-call events. The focus is not have decreased markedly in recent years. The work-related solely on developing work skills; safety abilities are also useful lost-time injury frequency rate (LTIFR) dropped to 2.0 in 2020, in traffic and at home. down from 2.7 in 2019. We have seen a 47% decline in the rate Due to the Covid-19 pandemic, in-person trainings were over the last five years. The number of work-related medical delayed and at the end of the year, SafeStart® trainings treatment injuries (MTIs) per million working hours was 2.8, were conducted virtually instead. During 2019, 15% (2 159) of compared to 3.3 in 2019. employees received SafeStart® training and in 2020 some In Southern Africa, we continue to participate in Swedish additional 5% were trained, in total 20%. Participant feedback workplace programs which focus on enabling strong relation- include a higher safety awareness among participants. In ships between management and employees through social 2021, additional trainings will be performed with the aim to dialogue. It is organized by the International Council of Swed- have 75% of all employees trained at year-end. This program is ish Industry (NIR). As a member of NIR, we collaborate with an important tool in our safety work to reach zero accidents. Swedish companies and other stakeholders with the common goal of promoting sustainable and responsible business. In the field and on the factory floor For 2021, implementation of the Live Work Elimination and Our field service technicians work with heavy equipment and SafeStart® will be in focus. in harsh conditions. Exposed to injury risk while on the job or in traffic, they are trained to adhere to safety procedures regardless of their working environment. Employees and contractors in our manufacturing facilities also face the risk of Our approach injury, primarily soft-tissue damage and cuts. Every division president and general manager is respon- Employee well-being is a good measure of a company’s sible for health and safety and for ensuring adherence to health. The number of sick days per employee/year was 5.1 the Sustainability Policy in planning processes, strategy, training, targets and performance. (4.9) in 2020, a figure that has remained consistently low in the last five years. Partly due to the Covid-19 pandemic, it The Epiroc Safety, Health, Environment and Quality increased slightly in the year. (SHEQ) Council is tasked with overseeing safety and Awareness raising continued to be in focus. The World Day well-being at Group level. The council proposes updates on Group policies, develops targets and key perfor- for Safety and Health at Work was observed throughout the mance indicators and implements and communicates company worldwide, largely through virtual workshops and improvements. Our management system is supporting online training. our safety first approach. We are currently shifting from During 2020, we continued to roll out our eight safety com- OHSAS 18001 to ISO 45001. mitments for customer centers that we launched 2019. The For more information about our management’s safety commitments reflect a personal responsibility-based approach, see pages 140-141. mindset whereby employees commit to always act with safety in mind. This means only performing tasks and operating

Epiroc Annual and Sustainability Report 2019 43 SUSTAINABILITY We grow together with passionate people and courageous leaders Our people

Epiroc’s key performance indicators All our people contribute to making Epiroc a great place to work, based on a shared culture of performance rooted in diversity, trust and employee care. Women managers, % Target and outcome 2020 Target: In 2020, we continued to build on our work with leadership, Target: 23.1 22.4 diversity and learning. We developed training programs to raise leadership skills and provided significantly enhanced opportunities for digital learning. In addition, we adopted the goal of doubling the number of women in operational roles over ten years, and we see this ambitious target as transformational. 40% of managers will be women and 30% of the Group workforce will be women by 2030. The total number of employees in the company was reduced by 428 during the year, from 14 268 in 2019 to 13 840 in 2020. The reduction was the result mainly from lower business volumes and efficiency actions. Target for 2020 was 22.4% and we reached 21.0%. The target was not reached not least due to the business downturn. Cultural and gender diversity Here, an over-proportion of employees leaving the company during 2020 came from non-operational roles and functions Dramatically improving gender diversity is a priority for us where more women are represented. as part of our continuous efforts to create high-performance teams. Our ambition is to achieve long-term change that not only enables us to attract more female colleagues but to build Women employees, % workplaces that are inclusive, energized and productive. Target and outcome 2020 We can see that certain job categories are more challenging than others for achieving these long-term goals. Our target Target: Target: is to double the number of women in operational roles – that is, 17.7 17.5 in R&D; marketing and sales; manufacturing and service. Today 14% of our R&D staff are women; 16% in marketing and sales; in manufacturing and services, it is 9% and 5% respectively. Activities are in place to support these objectives throughout the Group. This includes a global mentorship program for women; where 174 women have been mentored since 2015, which has given inspiration and created success stories. Our 2020 target was to increase the share of women in the Group to 17.5% and to raise the percentage of women Target for 2020 was 17.5% and we reached 15.7%. The target managers to 22.4%. At year-end, 15.7% of our employees was not reached not least due to the business downturn. Here, an over-proportion of employees leaving the company and 21.0% of our managers were women. The percentage of during 2020 came from non-operational roles and functions women employees in the company fell short of the target where more women are represented. mainly due to the business downturn. An over-proportion of employees leaving the company during the year came from non-operational roles and functions where more women are Leadership Index represented. Target/outcome 2020 We are proud of being a culturally diverse organization with some 33 nationalities represented among Epiroc’s most senior management worldwide. In addition, 161 (195) employees from 40 (48) countries work on long-term international assignments. Our Diversity & Inclusion Board, established beginning of 2020 with senior management members from across the Group, acts to secure continuous development in the area of diversity and inclusion and safeguard progress.

High-performing teams Epiroc’s decentralized culture is founded on collaboration and freedom with accountability. We work proactively to further Target for 2020 was 73 and the result was 71. Training programs enhance collaboration across the organization and between for all managers were released at the beginning of the year. These were converted to digital due to the Covid-19 pandemic, locations, and to build teams equipped with skills to deliver on and not all managers were able to complete them in 2020. our strategy. Trust is fostered through transparency and responsible

44 Epiroc Annual and Sustainability Report 2020 SUSTAINABILITY

Covid-19 pandemic support in action – examples

Photo: Christoph Anliker

Epiroc’s employee-run commu- Epiroc Surface Division in Öre- In South Africa, we donated In China we donated 5 000 nity engagement project, Water bro, Sweden donated 3 500 sanitizers and disinfectants facial masks as well as dis for All, provided financial aid of disposable gloves and 800 over- to employees in essential infectant and thermometers MSEK 1.7. The project worked head sheets to be used as pro- services such as nurses and to a customer as well as 2 000 closely with the Peter Wallenberg tective visors for local healthcare cleaners. We also collaborated bottles of medicinal alcohol to Water for All Foundation to sup- staff and a collaboration with with local authorities to create Nanjing Economic and Techno- port water, sanitation and hygiene aid organization Stadsmissionen awareness pamphlets and logical Development Zone. to Zahle, a Red Cross tent settle- to distribute food packages for posters in different languages. ment in Lebanon, to limit Covid-19 people in need was also initiated. infections among Syrian refugees.

feedback. Supporting the culture is a sustainability focus and capacity, affecting approximately a third of our staff with ethical mindset that promote long-term thinking. reduced working hours for a limited period and many started We apply the principles of lean management, emphasiz- to work remotely from home. ing efficiency while encouraging every individual at all levels Foremost we worked to ensure that employees were safe to take responsibility to develop their skills. In 2020, we and we provided support for adapting to new ways of work- took significant steps to provide continuous learning for our ing. The transition from office to home was largely smooth. employees. We piloted two digital learning projects that pro- Using digital technologies, we collaborated in ways that vide more than 14 000 learning modules to employees glob- will benefit us as individuals and organizationally also in the ally, including training that gives recognized qualifications. future. Many of our internal trainings were converted to digi- We also launched a new leadership development program tal, including Code of Conduct workshops, SafeStart® train- in October, an accelerator program for employees with solid ings and our digital training offer was significantly increased. performance and the ambition to become company man- During the year, we conducted two additional company- agement team members in the near future. This program is wide employee pulse surveys on our response to the added to our portfolio of global development programs and pandemic, in which a majority of employees responded. will continue in 2021. These showed that employees in general appeared to be bearing up well, keeping positive, and also that they see that Inclusive way to measure performance Epiroc is taking a genuine interest in their’ well-being. We During the year, 87% of employees had performance devel- received many thousands of comments via these surveys, opment talks with their managers. We completed our annual which allowed us to learn and strengthen our procedures employee survey in December, achieving a response rate and processes. of 83% (85) and well over the external benchmark for best Our strongly decentralized leadership culture equipped practice. In addition, employees gave more than 13 000 com- us to act quickly. A number of companies needed to react ments. The Engagement score of 78 was 3 points higher than very quickly to local regulations around shutting-down last year. This confirms the positive company spirit and the operations, for example, in India and Peru. Working under resilience of our employees, even in challenging times. The great pressure, our local teams managed to adapt, taking Leadership Index improved by 2 points to 71. Improvement care of employees and also being able to continue to attend areas were also identified, including for managers to have to our customers. more regular one-to-one check-ins with each person in their For more information about how the Covid-19 pandemic team. affected Epiroc, see pages 10-11. We will continue to develop our digital strategy in 2021 and further embed it throughout the organization as well as Our approach continue to focus on leadership development. Epiroc’s People and Leadership Council leads initiatives, Rising to the challenge of Covid-19 pandemic monitors performance and shares best practice in matters relating to human resource management across the The global Covid-19 pandemic affected businesses in Group. The Diversity & Inclusion Board, chaired by Epiroc’s all parts of the world – and Epiroc was no exception. We CEO, is responsible for setting targets, initiating activities, responded to the challenges with measures to ensure health as well as acting as ambassadors and leaders towards and well-being, supporting colleagues working from home achieving our targets and ambitions in this area. The Epi- and adapting our supply chains where possible. roc Code of Conduct sets out our commitment to diversity Putting people first lies at the heart of the Epiroc culture and high labor protection standards. and this guided our response to the global Covid-19 pan- For more information about our management’s approach, demic outbreak in 2020. The pandemic affected large parts of see pages 140-141. our organization, forcing us to temporarily work with reduced

Our main community engagement is Water for All. It empowers people through access to clean drinking water, sanitation and hygiene. Water for All is run on a voluntary basis by employees within the Epiroc Group and Atlas Copco Group. For more information, see cover and www.water4all.org.

Epiroc Annual and Sustainability Report 2020 45 SUSTAINABILITY We live by the highest ethical standards

Our Code of Conduct Epiroc’s key performance indicators Living by the highest ethical standards is the foundation of our business approach. Guiding employees and business partners and ensuring they adhere to Epiroc’s values and Code of Conduct are our core priorities. Significant suppliers that confirmed compliance with Epiroc Code of Conduct, % In 2020, we introduced the goal that all employees and busi- Target and outcome 2020 Target: Target: ness partners must comply with our Code of Conduct (CoC) 100 100 and that the Responsible Sales Assessment process must be fully implemented by 2030. These are essential components for upholding and working in accordance with our high ethical standards. Already today, we require all employees and business partners to adhere to the CoC and we track performance through compliance monitoring for managers and significant business partners. By 2030 at the latest, all employees and business partners will be required to confirm that that they understand and comply with the CoC. During the year, Epiroc established a dedicated compliance function at Group level, tasked with identifying related risks areas and supporting compliance awareness in the Target for 2020 was 100% and we reached 99%. We continue organization. We also completed the roll out of Speak Up, to work with our suppliers to reach 100%. our whistleblower system. We updated the CoC which will be launched in 2021 and include additional topics that reinforce the Epiroc values.

Significant agents, resellers and Risk-based approach distributors that confirmed compliance Epiroc customers are located in more than 150 countries. In with Epiroc Code of Conduct, % every market where we have a presence, we are committed Target and outcome 2020 to upholding high ethical standards and to acting with integ- Target: Target: rity. The geographical locations of our sites, suppliers and 97 95 customers play a central role in identifying risks. Some markets are complex and challenging and environmental, social and governance laws and regulations can vary considerably. Levels of risk exposure to corruption and human rights issues such as labor rights, forced labor, conflict minerals and land rights also vary considerably between markets. Our operations and product sourcing also give rise to potential environmental risks. The Epiroc CoC plays a cornerstone role in our approach for doing business the responsible way. In addition, we have put in place the Responsible Sales Assessment process in order to ensure that our customers and agents, resellers and Target for 2020 was 97% and we reached 72%. The risk definition was expanded during the year resulting in a distributors all demonstrate responsible business practices. significant increase of number of risk markets and thereby Through audits, Speak Up, responsible sourcing process the number of significant agents, resellers and distributors increased. The Covid-19 pandemic also affected the result and sales assessments, we better understand where risks of to some extent. non-compliance may occur, even when risks are beyond our direct control. Epiroc has zero tolerance of corruption.

Raising awareness During 2020, the focus was on updating the CoC and developing a training program for all employees to be rolled out in 2021. Compliance topic-of-the-month-articles are published on the intranet to increase awareness in the organization on

46 Epiroc Annual and Sustainability Report 2020 SUSTAINABILITY

different compliance topics and we also became members of Transparency International during the year. Every year, all managers must complete a digital training module and make a written statement committing to comply with the CoC. 99% (95) of managers successfully completed training during the year. The Covid-19 pandemic affected the completion of some CoC trainings and workshops and they were delayed until 2021.

Monitoring performance Speak Up, our whistleblower system, plays an important role in monitoring compliance with the CoC. Speak Up is managed through a third party and allows employees and external stakeholders to report potential non-compliance anonymously and in their local language. We do not tolerate retaliation against any employee for reporting an ethics or compliance issue. The number of cases reported via Speak Up or other channels rose in 2020 to 64 (44). In line with previous years, the largest category of reported cases related to labor relations. An increase in reported harassment, safety (due to the Covid-19 pandemic) and conflict of interest cases was noted in comparison with previous years. For more information about reported cases, see page 143.

Epiroc Annual and Sustainability Report 2020 47 SUSTAINABILITY

indicators, aligned between divisions and applicable Responsible Business across product companies and it is targeted to category strategies. Knowledge sharing among divisions includes Implementation of our responsible sourcing and sales aspects such as sustainability risks. We are working to programs is rooted in the Epiroc Code of Conduct (CoC), strengthen processes and procedures for supplier audits and UN Global Compact and the United Nations Guiding Princi- self-assessments. ples on Business and Human Rights (UNGP). Significant suppliers, agents, resellers and distributors are required to comply with the CoC and with international Epiroc stands for respect for human rights across our busi- standards and applicable regulations and this is monitored ness operations. We identify and manage human rights and evaluated. issues through responsible sales assessments and the The compliance confirmation we require them to sign sets responsible sourcing process. Implementing the UNGP is out 10 areas, based on the CoC, and is called the Epiroc Busi- an ongoing process for us that includes awareness-raising, ness Partner Criteria Letter. The letter clarifies our expecta- process development, implementation and follow-up across tions on companies we choose to do business with. A training the value chain. is available for purchasing managers, and include areas Among our challenges is to identify risks and influence such as human rights, modern slavery, conflict minerals and other parties’ behavior even when it is beyond our direct e-waste. The aim is to raise awareness of the implications of control. We guide our businesses with the help of various potential risks and where they might occur. policies, processes and tools. Another challenge is cobalt sourcing traceability and the human rights implications of Supply chain transparency cobalt mining, for example, in the Democratic Republic of We focus attention on significant suppliers, which are sup- Congo (DRC). It remains a priority area for discussions and pliers with the largest share of purchasing spend and those possible actions together with different stakeholders (for with operations in markets with the highest risk of corrup- more information, see p 140). During 2020 we also developed tion and human rights violations. We define risk markets our Conflict Minerals Policy. using criteria from an external risk indices firm and in 2020 expanded the risk definition to include additional human Responsible sourcing rights and environmental risks. In consequence the number Epiroc customers are located all over the world. Some of risk markets increased significantly. The total number of operate in regions that are not easily accessible and which significant suppliers was 1 532 (1 406). may demand customized solutions. We are able to better We assess supplier compliance in different ways. The meet their expectations thanks to a decentralized organiza- primary means of monitoring compliance is supplier self- tion. In response to the Covid-19 pandemic, we implemented assessments. Supplier on-site audits of selected suppliers some temporary supply-chain changes, including a shift to takes place every fifth year. In 2020, we performed 123 (335) safeguard deliveries to customers. We continued with our audits. Our supplier audits are performed on supplier’s prem- responsible sourcing focus on monitoring and assessment of ises and several audits were cancelled as a result of travel supply-chain risks. restrictions that came with the Covid-19 pandemic. Due to In 2020, we continued the roll out of our enterprise this new situation, performance of light or self-assessed resource planning (ERP) system. The system includes audits are used as an alternative. Of suppliers audited for

Epiroc Sourcing general process: Manage Procurement and Suppliers

Epiroc Equipment, 1. Develop 2. Evaluate 3. Develop 4. Develop 5. Division Purchasing consumables and sourcing suppliers and supplier specific Policy parts available for strategies maintain performance processes Epiroc’s customers at contracts the right time with the right cost and quality, provided by sustainable and approved suppliers. Self assess- A. Approve new supplier Sustainable ments and approved Division’s supplier suppliers Mission visits B. Audit supplier and Vision

C. Perform business partner reporting

D. Report conflict minerals

48 Epiroc Annual and Sustainability Report 2020 SUSTAINABILITY

Significant suppliers, geographical spread, % criteria that allows us to determine when a responsible sales assessment is required. These are: 1. Country – a third-party risk analytics firm ranks countries according to risks, such as different labor standards, impacts North America, 17% on land rights and indigenous people and corruption. South America, 0% 2. Customer – type of customer and project. Europe, 44% Africa/Middle East, 6% The roll out of the process will continue in 2021. Responsible Asia/Australia, 33% sales also include climate related considerations. Our product portfolio is designed for hard rock excavation environments, and not specifically for coal mining. During 2020, we took the decision to no longer develop new products target- ing the coal segment alone. Our exposure to coal is less than 3% of orders received and mainly derive from aftermarket safety, health, environment, business ethics and human solutions (p.30). We also updated our risk markets for other rights, 98% (95) were approved. Business relationship business partners such as significant agents, resellers and reviews are made when violations are detected. In these distributors. This led to a significant increase in the number of cases, business partners must adapt or change to meet our risk markets. For more information on how we implement the requirements and establish an action plan for compliance. UNGP, see page 143. Another precondition for doing business with us is that our business partners must allow us to perform audits. Europe and Asia/Australia account for 77% (60) of our significant suppliers´ base. Most deliveries from significant suppliers are made to regional Epiroc production sites and Our approach distribution centers. We have the ambition to source more The Compliance Board is responsible for ensuring that the from regional suppliers, thereby better serving customers Code of Conduct is implemented and complied with. Man- and adding value locally while reducing the CO2 footprint. agers are responsible for promoting CoC values and imple- This means expanding our sourcing footprint in Asia for our menting them among team members. All employees are regional production and distribution. expected to be aware of the CoC and to take responsibility for ensuring it is applied. Responsible sales The Sourcing Council is responsible for the Purchasing Pol- The implementation of the Responsible Sales Assessment icy and divisions hold responsibility for compliance. Local process, launched in 2019, was rolled out during the year. management is responsible for evaluating their suppliers, It includes a human rights due diligence process and its agents, resellers and distributors according to the require- purpose is to better understand and identifying mitiga- ments in the Business Partner Criteria Letter and CoC. tion measures for potential risks with regards to human For more information about our management approach, rights, corruption and environment in markets as well as in see pages 140-141 industries where Epiroc is present. Our assessment includes

Epiroc Annual and Sustainability Report 2020 49 ADMINISTRATION REPORT Administration report The year in review

The Covid-19 pandemic impacted Epiroc and the world significantly in 2020. In a challenging environment, Epiroc adapted the way of working, lowered costs, showed resilience in profitability, and delivered a solid result.

Administration report for Epiroc AB A number of actions were carried out to adapt to the Corporate registration number 556041-2149 lower demand due to the Covid-19 pandemic and to position the company stronger and more resilient for the future: Important events • The cost-saving program that was announced at the end Helena Hedblom appointed President and CEO of 2019 and enhanced during 2020 was completed. This and changes to Group Management resulted in permanent savings of more than MSEK 500 Helena Hedblom was appointed President and CEO of Epiroc annually in Q3 2020 and going forward. AB, effective March 1, 2020. On March 2, Epiroc appointed • Actions with short-term effects to meet lower demand as new members of Group Management and created a more a result of the Covid-19 pandemic were implemented as efficient working structure. Epiroc previously had seven planned. The actions included reductions of temporary divisions, where the presidents reported to a business area personnel and consultants, work-time reductions, and president. The new structure has five divisions, where the decreased discretionary spending and travel. presidents report directly to the President and CEO. • Additional permanent savings from actions implemented in the second half of 2020, including the reduction of staff Actions to improve resilience and agility in Sweden, will have an effect in 2021 and going forward. Epiroc has an agile and resilient business model and continu- • The supply-chain improvement program that was initiated ously adapts to prevailing business activity. The Covid-19 in 2018 to improve delivery service to customers, reduce pandemic affected Epiroc significantly in 2020. In a challeng- transport and other costs, and reduce capital tied up in ing environment, Epiroc adapted its way of working, lowered inventories continued according to plan with gradual costs, showed resilience in profitability and delivered a solid improvements. There were some delays in positive effects result. This was achieved while prioritizing health and safety due to the Covid-19 pandemic. of the employees and supporting customers. • Epiroc consolidated the production of exploration drilling tools in Canada. Production moved from North Bay to

Epiroc’s organization

The Group is organized in five separate and focused but still integrated divisions. The Revenues split by segment Group has two reporting segments, Equipment & Service and Tools & Attachments. Equipment & Service provides a wide range of mining and rock excavation equipment and related service and spare parts. Tools & Attachments provides rock drilling tools and hydraulic attachments that are attached to machines and mainly used for drilling, demolition and recycling as well as rock excavation. Tools & Attachments also provides related service and spare parts. Common Group Functions include functions, which serve the whole Group and is not considered a segment. Revenues from operating leases owned by Epiroc Financial Solutions are reported under Common Group Functions.

See the review of the reporting segments: Equipment & Service Equipment & Service on pages 58–59 Tools & Attachments Tools & Attachments on pages 60–61

Tools & Equipment & Service Attachments

Surface Underground Technology Parts & Tools & & Digital Services Attachments

50 Epiroc Annual and Sustainability Report 2020 ADMINISTRATION REPORT

Montréal, affecting approximately 65 employees in North Investments Bay. Epiroc also consolidated its dimension stone industry The investments in a new heat treatment plant for rock drills manufacturing in Bagnolo, Italy, to its production facil- and the expansion of the main production facilities for sur- ity in Nashik, India. The consolidation affected about 40 face drill rigs in Örebro, Sweden, continued during the year. employees. The projects are expected to be finalized in 2021. No major investments were decided in 2020. Innovations During the year, Epiroc launched and introduced sev- 2030 Sustainability goals eral productivity and sustainability-enhancing solutions, Epiroc established long-term sustainability goals in support of including: the Paris Agreement and the UN 2030 Agenda for Sustainable • A rotary drill for quarrying and small mining operations. Development. The ambition is to halve CO2 emissions from • A core-drilling rig with a mobile carrier built for demanding operations, transport and from the use of Epiroc equipment. underground operations. The base year is 2019. In addition, ambitious targets were set • A service agreement where customers can develop a to further support health and safety, improve gender diver- tailored maintenance plan by analyzing machine data. sity and strengthen the adherence to the Code of Conduct. • A software update to the successful Rig Control System with a range of improvements. Operational and financial review • A semi-automatic explosives delivery system for underground Market development and orders received applications. Customer demand for Epiroc’s equipment and aftermarket • A remote monitoring device for attachments. was affected by the Covid-19 pandemic mainly in the second • A premium tricone drill bit, which greatly improves drilling quarter, when customers were cautious in taking investment productivity through extended bit life and faster drilling. decisions and activity was impacted by restrictions. In the • An extension of the range of hydraulic breakers for tun- second half of 2020, the order intake improved as custom- neling applications. ers took decisions to invest and activity levels improved • A tube-drilling system, primarily for underground produc- as restrictions were eased. Orders received decreased 7% tion drilling. to MSEK 36 579 (39 492) due to negative currency effects. Excluding currency, the order intake was unchanged. Acquisitions Equipment & Service had order intake of MSEK 27 252 Epiroc signed agreements for two acquisitions in 2020. In (28 509), corresponding to 3% organic growth. Service had December, an agreement to acquire MineRP, a software organic order growth of 7%, while equipment saw an organic company specializing in increasing productivity for mines order decline of 2%. The growth in the service business was through integrated planning, execution and analytics, was largely attributable to the structured work with service prod- signed. The company had revenues of MUSD 16 (MSEK ucts as well as marketing and sales activities. 135) for the 12 months ending June 30, 2020, and about 200 Tools & Attachments had order intake of MSEK 9 185 employees. The acquisition is planned to be finalized in the (10 768), corresponding to 7% organic decline. The lower first half of 2021. Italparts, a distributor of spare parts, based activity following Covid-19 restrictions had a negative impact in Italy, was acquired in August. on the demand.

Orders received by region and change in local currencies

North America Europe 21% 24% of orders received of orders received -8% 0% in 2020 in 2020

South America Africa/Middle East Asia/Australia 13% 14% 28% of orders received of orders received of orders received +2% +4% 0% in 2020 in 2020 in 2020

Epiroc Annual and Sustainability Report 2020 51 ADMINISTRATION REPORT

Geographical development Revenues North America Revenues for 2020 decreased 12% to MSEK 36 122 (40 849), Order intake in North America decreased 8% in local cur- corresponding to a 5% organic decrease. Currency effects rencies. Orders for Tools & Attachments and also for service contributed negatively with 6% and structural changes had decreased, while equipment orders increased somewhat. a negative effect of 1%. Epiroc’s goal is to achieve annual North America accounted for 21% (22) of orders received. revenue growth of 8% over a business cycle. Compound annual revenue growth was 5% in 2015–2020. The busi- South America ness area Mining and Rock Excavation Technique of Atlas Order intake in South America increased 2% in local cur- Copco, which represents approximately 93% of Epiroc rencies. Orders increased for Equipment & Service, while and is a good proxy for Epiroc’s business, had compound Tools & Attachments had lower order intake. South America annual revenue growth of approximately 5% in 2009–2017. accounted for 13% (14) of orders received. Book to bill was 101% (97). Revenues for Equipment & Service decreased 10% to Europe SEK 26 927 (29 891), corresponding to 4% organic decline. Order intake in Europe was unchanged in local currencies. Currency effects contributed negatively with 6%. Orders increased for Service and Tools & Attachments while Revenues for Tools & Attachments decreased 16% to equipment orders decreased somewhat. Europe accounted MSEK 9 024 (10 799), corresponding to 8% organic decline. for 24% (23) of orders received. Currency effects contributed negatively with 6% and structural changes with 2%. Africa/Middle East All geographic regions, except Africa/Middle East had Order intake in Africa/Middle East increased 4% in local lower revenues in local currencies. currencies. Orders for Equipment & Service increased while Aftermarket revenues accounted for 68% (66) of total Tools & Attachments had lower order intake. Africa/Middle revenues and equipment for 32% (34). East accounted for 14% (14) of orders received. Operating profit Asia/Australia Operating profit decreased 9% to MSEK 7 382 (8 136). The Order intake in Asia/Australia was unchanged in local cur- operating profit was negatively impacted mainly by lower rencies. Orders for service increased, while orders for equip- volumes and currency, partly compensated by cost sav- ment and Tools & Attachments decreased. Asia/Australia ings. Operating profit includes items affecting comparabil- accounted for 28% (27) of orders received. ity of MSEK -287 (-446). These items include restructuring costs related to efficiency improvements of MSEK -188

Orders received, Revenues by Annual and average Revenue split by equipment revenues and book to bill geographic area revenue growth and aftermarket

MSEK % % %

Orders received, MSEK N o r t h S o u t h Revenue growth, % Equipment Revenues, MSEK America America Compound annual growth Aftermarket Book to bill, % Europe A f r i c a / rate, 2015-2020, % Asia/Australia Middle East

Orders received, MSEK Revenues, MSEK Epiroc’s goal is to achieve an annual revenue growth of 8% over 36 579 36 122 a business cycle. The compound –7% in 2020 –12% in 2020 annual revenue growth has been 5% during the period 2015–2020.

52 Epiroc Annual and Sustainability Report 2020 ADMINISTRATION REPORT

(-224), change in provision for long-term incentive programs Sales and profit bridge of MSEK -99 (-194), and a cost of MSEK -28 related to the agreement with the departing President and CEO in 2019. Orders Operating The operating margin improved to 20.4% (19.9), affected received Revenues profit Margin, positively by cost savings, mix and currency, but negatively MSEK, Δ, % MSEK, Δ, % MSEK, Δ %, Δ, pp by volume. The operating margin, adjusted for items affect- 2019 39 492 40 849 8 136 19.9 ing comparability, was 21.2% (21.0). Organic 0 -5 -651 -0.8 Operating profit for Equipment & Service decreased Currency -7 -6 -352 +0.5 11% to MSEK 6 639 (7 435), including restructuring costs of Structure and other 0 -1 +249 +0.8 MSEK –84 (–28). The profit was negatively impacted mainly Total -7 -12 -754 +0.5 by lower volumes and currency, but was supported by cost 2020 36 579 36 122 7 382 20.4 savings. The operating margin was 24.7% (24.9), affected negatively by volume and by restructuring costs, but positively by cost savings, mix and currency. Depreciation and EBITDA Operating profit for Tools & Attachments decreased 12% Depreciation, amortization and impairment costs were MSEK to MSEK 1 097 (1 252), including restructuring costs of MSEK –1 746 (–1 978). Earnings before depreciation and amortiza- –104 (–196). The profit was negatively impacted by lower tion, EBITDA, were MSEK 9 128 (10 114), corresponding to a volumes and currency, but was supported by cost savings. margin of 25.3% (24.8). The operating margin was 12.2% (11.6). Adjusted for restructuring costs, the operating margin improved to 13.3% (12.5), Financial items positively affected by cost savings and negatively by lower Financial income was MSEK 144 (180) and financial expenses volume and currency. were MSEK –439 (–473). Net financial items were MSEK –295 The operating loss for Common Group Functions was (–293), negatively impacted by exchange rate differences of MSEK –354 (–551). The costs decreased as a result of cost MSEK –182 (–112). Net interest costs were MSEK –117 (–186). efficiency measures. The change in provision for share- based long-term incentive programs was MSEK –99 (–194). Profit before tax and income tax expense Costs related to the split from Atlas Copco were lower and Profit before tax amounted to MSEK 7 087 (7 843), corre- amounted to MSEK –18 (-62). sponding to a margin of 19.6% (19.2). Income tax expense Epiroc’s goal is to have an industry-best operating amounted to MSEK –1 677 (–1 959), corresponding to an margin, with strong resilience over the business cycle. The effective tax rate of 23.7% (25.0). Group’s operating margin average in 2015–2020 was 18.9%.

Operating profit Operating margin (EBIT) average and margin 2015–2020 vs. peers and industrial companies

MSEK % %

Large cap global industrials: 3M, ABB, Alfa Laval, Assa Abloy, Atlas Copco, Caterpillar, Danaher, Deere & Co, Dover, Eaton Corp., Emerson, FLSmidth & Co, Fortive, General Electric, Graco, Hitachi, Honeywell, Komatsu, Kone, Legrand, Mitsubishi Heavy Industries, Nordson Corporation, Parker Hannifin, Rockwell Automation, Roper Technolo- gies, Sandvik, Schindler Holding, Schneider Electric, Siemens, SKF, Smiths Group, United Technologies, Volvo AB and Xylem. Mining and construction equipment companies: Boart Longyear, Caterpillar, Everdigm, Furukawa Co, Komatsu, Metso Outotec, Robit, Sandvik and Weir. Reported data until February 28, 2021.

Operating profit, MSEK E p i r o c Operating margin, % Large cap global industrials Adjusted operating margin, % Mining and construction equipment companies

Operating profit, MSEK Operating margin Epiroc’s goal is to have an industry- best operating margin, with strong 7 382 20.4% resilience over the cycle. The Group’s average operating margin for the years 2015–2020 was 18.9%.

Epiroc Annual and Sustainability Report 2020 53 ADMINISTRATION REPORT

Profit for the year and earnings per share Financing Profit for the year decreased 8% to MSEK 5 410 (5 884). This Long-term financing consists of capital market borrowings of corresponds to basic earnings per share of SEK 4.48 (4.89) MSEK 4 000 and loan facilities of MSEK 3 000 and MEUR 100, and diluted earnings per share of SEK 4.48 (4.89). with maturities in 2022–2027. As back up, the Group has a MSEK 4 000 revolving credit facility and a MSEK 2 000 com- Balance sheet in summary mercial paper program, both unutilized at year-end 2020. See also note 21 and 28. % of total % of total MSEK 2020 assets 2019 assets Credit rating Intangible assets 4 111 9 4 226 10 Epiroc’s goal is to have an efficient capital structure and have Rental equipment 999 2 1 213 3 the flexibility to make selective acquisitions. The goal is to Other property, maintain an investment grade rating. Epiroc is assigned a plant and BBB+ long-term issuer credit rating with a stable outlook equipment 4 150 10 4 613 11 from S&P Global Ratings. Other non- current assets 2 313 5 1 838 4 Equity and comprehensive income Inventories 8 930 20 10 508 26 At year-end, Group equity including non-controlling Trade receivables 6 045 14 7 287 18 interests was MSEK 23 739 (22 813), corresponding to Other receivables 1 603 4 1 950 5 54.1% (55.6) of total assets. Equity per share was SEK 19.71 Financial assets 682 2 862 2 (19.00). Epiroc’s market capitalization at year-end was MSEK Cash and cash 177 483 (137 504). Total comprehensive income for the year equivalents 15 053 34 8 540 21 decreased to MSEK 3 450 (6 185). Total assets 43 886 100 41 037 100 Dividend Total equity 23 739 54 22 813 56 Epiroc’s goal is to provide long-term stable and rising divi- Interest bearing dends to its shareholders. The dividend should correspond liabilities 10 961 25 9 025 22 to 50% of net profit over the business cycle. The Board of Non-interest Directors proposes to the Annual General Meeting a divi- bearing liabilities 9 186 21 9 199 22 dend of SEK 2.50 (2.40) per share. The proposed dividend Total equity corresponds to 56% (49) of net profit. and liabilities 43 886 100 41 037 100 Mandatory redemption of shares Assets The Group’s financial position is strong. The Board of Direc- The Group’s total assets increased 7% to MSEK 43 886 tors, therefore proposes a distribution of SEK 3.00 per share (41 037), mainly as cash and cash equivalents increased fol- through mandatory redemption, see page 62. lowing strong cash generation. Currency effects decreased assets by about 8%. Inventory and customer receivables Working capital decreased in local currency for comparable units. Net working capital decreased 20% to MSEK 10 571 (13 153) compared to the previous year, of which 13% is related to Net cash/net debt currency. For comparable units and currency-adjusted, net The Group’s net cash amounted to MSEK 4 137 (net debt working capital decreased 7%, with a reduction in both trade 483), of which MSEK 806 (596) of the debt was attributable to receivables and inventories. Average net working capital was post-employment benefits. The net debt/EBITDA ratio was MSEK 12 217 (14 062). As a percentage of revenues in the last –0.45 (0.05). The net debt/equity ratio was –17.4% (2.1). 12 months, average net working capital was 33.8% (34.4).

Tax rate Earning per share, SEK Dividend per share, SEK Redemption per share, SEK 23.7% 4.48 2.50* 3.00* Profit for the year decreased *Proposed by the Board *Proposed by the Board 8% to MSEK 5 410.

54 Epiroc Annual and Sustainability Report 2020 ADMINISTRATION REPORT

Capital turnover MSEK –507 (–486) and sales were MSEK 84 (60), thus net The capital turnover ratio was 0.8 (1.0). The capital employed investments in property, plant and equipment were MSEK turnover ratio was 1.1 (1.4). –423 (–426). The largest investments were made in the manufacturing facilities in Örebro and Fagersta, Sweden, Return on capital employed and return on equity and in Garland, Texas, United States. Investments in intan- Return on capital employed decreased to 21.7% (27.6), gible assets, mainly related to capitalization of develop- affected by lower profit as well as by increased capital ment expenditures but also investments in IT systems, were employed, mainly from accumulation of cash. MSEK –494 (–521), net. Epiroc’s goal is to improve capital efficiency and resilience. Investments and acquisitions should create value. Return Acquisitions and other investments on capital employed remained at a high level, even if it was One (three) acquisitions and no (two) divestments were com- negatively affected by the accumulation of cash. pleted and the cash flow effect was MSEK –75 (–984), see Return on equity was 22.7% (28.3). note 3 and 14. Proceeds to/from other financial assets were positive at MSEK 384 (276), net, including proceeds from the Operating cash flow and investments divestment of some Financial Solutions credit portfolios. Operating cash flow increased to MSEK 7 006 (6 688), mainly due to an improvement in cash flow from working capital. Cash flow from financing Net cash flow from operating activities was MSEK 8 Dividends paid to shareholders were MSEK –2 892 (–2 523) 334 (7 228). Net financial items paid were MSEK –94 (–410). and dividends paid to non-controlling interests were MSEK Taxes paid were MSEK –1 800 (–2 157). Cash flow from –9 (–8). Cash flow from sales and repurchases of own shares change in working capital was MSEK 1 121 (337), mainly was MSEK 370 (340), net, all related to hedging or deliveries due to decreased trade receivables and inventories. Net of shares for the long-term incentive programs described in investments in rental equipment were MSEK –219 (–343). note 24. The change in interest-bearing liabilities was MSEK Gross investments in property, plant and equipment were 1 541 (–820).

Return on capital employed Net working capital Operating cash flow

MSEK % MSEK % MSEK

Average capital employed, MSEK Average net working capital, MSEK Operating cash flow, MSEK Return on capital employed, % Average net working capital/ revenues, % Numbers prior to 2019 are not restated for IFRS 16.

Return on capital employed Epiroc’s goal is to improve capital efficiency and resilience. 21.7% Investments and acquisitions shall create value. The return on capital employed remained at a high level.

Epiroc Annual and Sustainability Report 2020 55 ADMINISTRATION REPORT

Average number of employees Employees 2020 % of total 2019 % of total The average number of employees decreased 3% to 14 012 North America 2 042 15 2 253 16 (14 398). At year-end, the number of employees was 13 840 South America 1 377 10 1 476 10 (14 268). Epiroc uses additional workforce in addition to its Europe 4 674 33 4 813 34 permanent personnel to handle temporary fluctuations in – of which Sweden 3 105 22 3 157 22 demand. Additional hires work primarily in Epiroc’s manufacturing and assembly plants, but also in research and Africa/Middle East 2 278 16 2 070 14 Asia/Australia 3 641 26 3 786 26 development. The additional workforce was 1 109 (1 366) at the end of the year. For comparable units, the total work- Total 14 012 100 14 398 100 force decreased by 686 compared to the previous year.

Employees by professional category, %

2020 2019 Service & supply chain 40 37 Production 26 28 Administration 16 16 Marketing, sales & support 11 12 Research & development 7 7 Total 100 100

Share of employees by region

Europe

North 33% America 15%

Asia/ Australia Africa/ Middle East Global presence South 26% At the end of 2020, Epiroc had America 21 manufacturing facilities in ten 16% countries. Equipment & Service 10% had seven facilities and Tools & Attachments had 15. One facility serves both Equipment & Ser- vice and Tools & Attachments. Epiroc has customer centers Equipment & Service production facility in more than 60 countries and Tools & Attachments production facility sales in more than 150 countries.

Average number of employees Average number of employees Women employees, % 14 012

56 Epiroc Annual and Sustainability Report 2020 ADMINISTRATION REPORT

Presentation of Epiroc’s segments Revenues split by segment Equipment & Service, pages 58–59 Tools & Attachments, pages 60–61

Equipment & Service Tools & Attachments

Epiroc Annual and Sustainability Report 2020 57 ADMINISTRATION REPORT

Orders received for Equipment & Service were MSEK 27 252 Equipment & Service (28 509), corresponding to 3% organic growth. Currency effects had a negative impact on orders received with 7%. Equipment & Service provides equipment and solutions for Equipment orders decreased 8% to MSEK 11 326 (12 355), rock drilling, mechanical rock excavation, rock reinforce- corresponding to 2% organic decline. The negative impact ment, loading and haulage, ventilation systems, exploration from currency was 6%. Geographically, orders received drilling, and drilling equipment for water, energy, oil and increased in Africa/Middle East, but decreased in all other gas. It also provides related parts, services, and solutions regions. for automation and interoperability. Service orders had an organic growth of 7%. Orders received decreased 1% to MSEK 15 926 (16 154) due to a 2020 in review negative impact from currency of 8%. Geographically, orders Market development and orders received received for service increased in all regions, except North Customer demand for Epiroc’s equipment was affected by America. the Covid-19 pandemic mainly during the second quarter, when customers were cautious in taking investment deci- Revenues sions. In the second half of 2020, the demand improved as Revenues decreased 10% to MSEK 26 927 (29 891), cor- customers took decisions to invest. The demand for service responding to an organic decline of 4%. Currency had a was negatively impacted by lower activity caused by restric- negative effect of 6%. Equipment revenues decreased 18% to tions. Still the structured work with service products and MSEK 11 382 (13 861), corresponding to an organic decline of with marketing and sales activities supported the service 13%. Service revenues decreased 3% to MSEK 15 545 (16 030), business. corresponding to an organic growth of 5%. Investments were made in innovation to strengthen the Book to bill was 101% (95). Service accounted for 58% (54) offering, in market presence and facilities for service, and in of revenues. manufacturing.

Orders received, revenues Operating profit and Revenues by and book to bill operating margin geographic area

MSEK % MSEK %

Orders received, MSEK Operating profit, MSEK N o r t h S o u t h Revenues, MSEK Operating margin, % America America Book to bill, % Adjusted operating margin, % Europe A f r i c a / Asia/Australia Middle East

Order received, MSEK Revenues, MSEK One acquisition 27 252 26 927 completed in 2020. -4% in 2020 -10% in 2020

Operating profit, MSEK Operating margin 6 639 24.7%

58 Epiroc Annual and Sustainability Report 2020 ADMINISTRATION REPORT

Sales bridge strengthened. Investments were made in research and Equipment Service development, mainly in targeted areas such as automation, digitalization and electrification, in automation centers, and Orders Orders in service and manufacturing facilities. Control Towers that received Revenues received Revenues MSEK, Δ, % MSEK, Δ, % MSEK, Δ, % MSEK, Δ, % showcase Epiroc’s digitalization solutions were inaugurated at Epiroc’s facilities in South Africa and China, in addition to 12 355 13 861 16 154 16 030 2019 the ones already established in Sweden, Chile and Australia. Organic -2 -13 +7 +5 The Group has automation centers in all regions of the world. Currency -6 -5 -8 -8 Efficiency initiatives were implemented in all entities world- Structure and other 0 0 0 0 wide and included restructuring actions. The dimension stone Total -8 -18 -1 -3 industry manufacturing in Bagnolo, Italy, was consolidated 2020 11 326 11 382 15 926 15 545 to the existing production facility in Nashik, India. Targeted efforts brought manufacturing capacity in line with demand. Sales and profit bridge Acquisition Orders Operating Equipment & Service completed the acquisition of Italparts, a received Revenues profit Margin, MSEK, Δ, % MSEK, Δ, % MSEK, Δ %, Δ, pp distributor of spare parts, based in Italy, in August, see note 3. An agreement was signed in December to acquire 2019 28 509 29 891 7 435 24.9 MineRP, a software company specializing in increasing pro- Organic +3 -4 -524 -0.9 ductivity for mines through integrated planning, execution Currency -7 -6 -221 +0.9 and analytics. The company had revenues of MUSD 16 (MSEK Structure and other 0 0 -51 -0.2 135) for the 12 months ending June 30, 2020, and about 200 Total -4 -10 -796 -0.2 employees. The acquisition is planned to be finalized in the 2020 27 252 26 927 6 639 24.7 first half of 2021.

Operating profit and margin Innovations Operating profit decreased 11% to MSEK 6 639 (7 435), Several new products and solutions were introduced during including restructuring costs related to efficiency improve- the year, including; ments of MSEK –84 (–28). The operating profit was negatively • A rotary drill for quarrying and small mining operations. impacted mainly by lower volumes and currency. The oper- • A core-drilling rig with a mobile carrier built for demanding ating margin decreased to 24.7% (24.9), affected negatively by underground operations. volume and by restructuring costs, but positively by revenue • A service agreement where customers can develop a tai- mix and currency. Adjusted for restructuring costs, the oper- lored maintenance plan by analyzing machine data. ating margin was 25.0% (25.0). • A software update to the successful Rig Control System with a range of improvements. Business and organizational development • In addition, Epiroc presented, together with commercial More resources were added to support the service business explosives provider Orica, a semi-automatic explosives and customer projects and the sales organization was further delivery system for underground applications.

Equipment is sold by sales engineers with strong application knowledge and service technicians support customers all over the globe in achieving improved productivity and increased sustainability.

Epiroc Annual and Sustainability Report 2020 59 ADMINISTRATION REPORT

tural changes impacted the revenues negatively with 6% and Tools & Attachments 2%, respectively. Book to bill was 102% (100).

Tools & Attachments develops, manufactures and markets Operating profit and margin rock drilling tools and hydraulic attachment tools, and also Operating profit decreased to MSEK 1 097 (1 252), includ- provides related service. The products are used for rock ing restructuring costs related to efficiency improvements excavation, mining, construction, demolition and recycling. of MSEK –104 (–196). The operating profit was negatively impacted mainly by lower volumes and currency, but supported by cost savings. The restructuring costs were lower 2020 in review compared to the previous year. The operating margin was Market development and orders received 12.2% (11.6). Adjusted for restructuring costs, the operat- Activity in both the infrastructure and mining industry was ing margin was 13.3% (13.4), positively affected by efficiency impacted negatively by the restrictions caused by Covid-19. actions and negatively affected by lower volume and Depending on restrictions, the order intake varied signifi- currency. cantly between countries. Orders received decreased 15% to MSEK 9 185 (10 768), Sales and profit bridge corresponding to an organic decline of 7%. Currency and Orders Operating received Revenues profit Margin, structural changes impacted the order intake negatively with MSEK, Δ, % MSEK, Δ, % MSEK, Δ %, Δ, pp 6% and 2%, respectively. Both hydraulic attachments and rock drilling tools saw an organic decline in orders received. 2019 10 768 10 799 1 252 11.6 Geographically, orders received decreased in all regions. Organic -7 -8 -152 -0.7 Currency -6 -6 -143 -0.7 Revenues Structure and other -2 -2 +140 +2.0 Revenues decreased 16% to MSEK 9 024 (10 799), corre- Total -15 -16 -155 +0.6 sponding to an organic decline of 8%. Currency and struc- 2020 9 185 9 024 1 097 12.2

Orders received, revenues Operating profit and Revenues by and book to bill operating margin geographic area

MSEK % MSEK %

Order received, MSEK Revenues, MSEK 9 185 9 024 -15% in 2020 -16% in 2020

Operating profit, MSEK Operating margin 1 097 12.2%

60 Epiroc Annual and Sustainability Report 2020 ADMINISTRATION REPORT

Business development • A premium tricone drill bit, which greatly improves drilling Efficiency initiatives were implemented in all entities world- productivity through extended bit life and faster drilling. wide. The production of exploration-drilling tools in Canada • An extension of the range of hydraulic breakers for tun- was consolidated and production moved from North Bay to neling applications, with features such as extended life- Montréal, affecting approximately 65 employees in North time, overall cost reductions and energy recovery. Bay. At the end of 2019, a factory producing handheld rock • A new tube drilling system, primarily for underground pro- drilling equipment and tools in Shandong, China, was closed. duction drilling. It offers features such as longer service life, straighter and deeper drilling and enables better service Innovations planning. Several new products and solutions were introduced during the year, including: • A remote monitoring device for attachments such as breakers and drum cutters that tracks location and operating hours to improve efficiency and safety.

With the new Epsilon² premium tricone drill bit, surface mining and construction professionals will enjoy up to 100% longer distance drilled before bit discard.

Epiroc Annual and Sustainability Report 2020 61 ADMINISTRATION REPORT

SEK Parent Company Retained earnings incl. reserve for fair value 47 763 374 441 Profit for the year 2 633 865 387 Epiroc AB is the ultimate Parent Company of the Epiroc Group and is headquartered in Nacka, Sweden. Its opera- Total 50 397 239 828 tions include administrative functions for the Group. The Board of Directors proposes that these earnings shall be appropriated as follows: Earnings To the shareholders, The operating loss was MSEK –110 (–167). Profit before tax a dividend of SEK 2.50 per share 3 014 811 225 totaled MSEK 3 336 (3 707). Profit for the year amounted to a redemption of shares of SEK 3.00 per share 3 617 773 470 MSEK 2 634 (2 935). To be retained in the business carried forward 43 764 655 133 Total 50 397 239 828 Financing Total assets were MSEK 59 300 (57 122) at year-end. Interest- bearing liabilities, excluding post-employment benefits, Mandatory redemption of shares totaled MSEK 7 987 (6 029). Equity represented 86% (89) of Epiroc has generated significant operating cash flows in total assets and non-restricted equity totaled MSEK 50 397 recent years and the Group’s financial position is strong. The (50 277). Board, therefore, propose a mandatory share redemption procedure, whereby each share is split into one ordinary Employees share and one redemption share. The redemption share is The average number of employees was 41 (44). then automatically redeemed at SEK 3.00 per share. This corresponds to a total of MSEK 3 618. The proposed prelimi- Remuneration nary record day for the share redemption split is May 17, 2021. Principles for remuneration, fees and other remuneration The payment of the redeemed shares would, if approved, be paid to the Board of Directors, the President and CEO, and made around June 15, 2021. other members of Group Management, other statistics and Combined with the proposed dividend, shareholders will the guidelines regarding remuneration and benefits to Group receive SEK 5.50 per share, equal to MSEK 6 633. Management as approved by the Annual General Meeting The total amount of distribution will depend on the total are specified in note 5. number of shares owned by Epiroc on the dates of dividend distribution and the share redemption split. Financial risks, risks and factors of uncertainty Epiroc is subject to currency risks, interest rate risks and Statement by the Board of Directors on other financial risks. Epiroc has adopted a policy to control the proposed appropriation of profit and the financial risks to which Epiroc AB and the Group are the mandatory redemption of shares exposed. A financial risk management committee meets The Board of Directors hereby makes the following state- regularly to take decisions about how to manage these risks. ment in accordance with Chapter 18, Section 4 of the Swedish See also pages 72–79 and note 28. Companies act. The Board notes that that there will be full coverage for the company’s restricted equity. Shares and share capital The Board makes the assessment that the company’s and At year-end, Epiroc AB’s share capital totaled MSEK 500 the Group’s equity after the distribution to shareholders will (500). The total numbers of issued Epiroc shares were be able to sustain the requirements, which the nature, size and 1 213 738 703 shares, of which 823 765 854 shares were class risks of the business present. The Board further considers the A and 389 972 849 shares were class B. For more information, actions reasonable in light of the company’s and the Group’s see note 20. consolidation requirements, liquidity and position in general. The distribution is not assumed to present any risk for the Performance-based long-term incentive program company’s or the Group’s ability to fulfil its short or long term The Board of Directors of Epiroc has been authorized to pur- payment obligations, nor the ability of the company to make chase, transfer and sell the company’s own shares in relation required investments. Reflecting this, the Board considers to Epiroc’s performance-based personnel option plans. At the proposed dividend distribution to be compatible with year-end 2020, Epiroc held 7 814 213 class A shares. the rules of reason expressed in the Swedish Companies Act The Board of Directors will propose to the Annual General (2005:551) chapter 17 § 3 paragraphs 2-3. Meeting 2021 a similar performance-based long-term incentive program as in previous years. See notes 20 and 24.

Appropriation of profit Statutory sustainability report The Board of Directors proposes to the Annual General Epiroc has prepared a sustainability report in accor- Meeting a dividend of SEK 2.50 (2.40) per share, which cor- dance with the Global Reporting Initiative (GRI) guide- responds to a total of MSEK 3 015 (2 892). The dividend is lines. The sustainability report has been prepared in proposed to be paid in two equal installments, the first with accordance with disclosure requirements set out in the a record date of April 30, 2021 and the second with a record Swedish Annual Accounts Act chapter 6 paragraph 11. date of October 28, 2021. It is also proposed that the balance The scope and content of the sustainability report is of retained earnings after the dividend shall be retained in defined on page 138. the business as described in the table to the right.

62 Epiroc Annual and Sustainability Report 2020 ADMINISTRATION REPORT Five-year summary

MSEK 20161) 20171) 2018 2019 2020 Orders, revenues and profit Orders received 27 634 33 831 39 400 39 492 36 579 Revenues 27 102 31 364 38 285 40 849 36 122 Change organic, % -3 +14 +18 +1 -5 EBITDA 5 765 7 183 8 753 10 114 9 128 EBITDA margin, % 21.3 22.9 22.9 24.8 25.3 Operating profit 4 548 5 930 7 385 8 136 7 382 Operating margin, % 16.8 18.9 19.3 19.9 20.4 Adjusted operating profit 2) 4 836 6 093 7 779 8 582 7 669 Adjusted operating margin, % 2) 17.8 19.4 20.3 21.0 21.2 Net financial items -137 -137 -184 -293 -295 – of which interest net na -125 -137 -186 -117 Profit before tax 4 411 5 793 7 201 7 843 7 087 Profit margin, % 16.3 18.5 18.8 19.2 19.6 Income tax expenses -1 180 -1 495 -1 764 -1 959 -1 677 Tax rate, % 26.8 25.8 24.5 25.0 23.7 Profit for the period 3 231 4 298 5 437 5 884 5 410

Employees Number of employees, period end 11 705 12 948 13 847 14 268 13 840 Additional workforce, period end 954 1 397 1 610 1 366 1 109 Average number of employees 11 749 12 355 13 517 14 398 14 012 Revenues per employee, SEK thousands 2 307 2 538 2 832 2 837 2 578

Operating cash flow Net cash flow from operating activities 5 402 5 176 4 324 7 228 8 334 Net cash from investing activities -1 805 5 543 -1 337 -1 655 -608 Acquisitions and divestments of subsidiaries – 137 546 984 75 Other adjustments 3) 1 283 -6 246 351 131 -795 Operating cash flow 4 880 4 610 3 884 6 688 7 006

Change in working capital 895 -403 -1 875 337 1 121 Increase in rental equipment -677 -793 -896 -915 -595 Sale of rental equipment 386 422 522 572 376 Net investments in rental equipment -291 -371 -374 -343 -219 – as % of revenues -1.1 -1.2 -1.0 -0.8 -0.6 Investments in property, plant and equipment -293 -424 -577 -486 -507 Sale of property, plant and equipment 58 70 26 60 84 Net investments in property, plant and equipment -235 -354 -551 -426 -423 – as % of revenues -0.9 -1.1 -1.4 -1.0 -1.2 Net investments in intangible assets -287 -289 -459 -521 -494 Sale/repurchase own shares – – -1 307 340 370

Balance sheet Total assets 29 984 27 547 36 155 41 037 43 886 Average capital employed 23 167 21 674 23 086 29 518 34 033 Capital employed turnover ratio 1.2 1.4 1.7 1.4 1.1 Return on capital employed, 12 months % 19.6 27.4 32.0 27.6 21.7 Net debt 1 986 5 424 1 208 483 -4 137 Net debt/EBITDA ratio 0.34 0.75 0.14 0.05 -0.45 Total equity 15 813 12 047 18 847 22 813 23 739 Debt/equity ratio, period end, % 12.6 45.0 6.4 2.1 -17.4 Equity/assets ratio, period end, % 52.7 43.7 52.1 55.6 54.1 Return on equity, 12 months % 20.4 29.1 33.2 28.3 22.7 Average net working capital n/a 9 991 12 158 14 062 12 217 Average net working capital/revenues, % n/a 31.9 31.8 34.4 33.8

1) Financial statements prior to 2018 are combined. See note 1 in the Annual and Sustainability Report 2018. 2) Adjusted for costs for the split from Atlas Copco until 2018 and for items affecting comparability, including change in provision for share-based long-term incentive programs. 3) In 2016–2017, mainly changes in cash-pool with Atlas Copco and currency hedges of loans. In 2018, 2019 and 2020, mainly currency hedges of loans and divestment of Financial Solutions portfolios. Financial definitions can be found on page 134. Non-IFRS measures are presented in this report since they are considered to be important supplemental measures of the company’s performance. Information on how these measures have been calculated can also be found on Epiroc’s website, www.epirocgroup.com/en/investors/financial-publications.

Epiroc Annual and Sustainability Report 2020 63 CORPORATE GOVERNANCE REPORT Corporate Governance Report

Epiroc’s corporate governance is designed to support the Group’s long term strategy for profitable growth and to uphold confidence among stakeholders, such as shareholders, customers, business partners, capital markets, society and employees.

Corporate governance relates to the decision-making sys- Shareholders tems by which shareholders, directly or indirectly, control the At year-end 2020, the total number of shareholders was Group. The following section provides details about corporate 67 162 (70 716). The proportion of foreign ownership was 53.4% governance within Epiroc. As a company listed on Nasdaq (52.7) of the number of outstanding shares. One shareholder, Stockholm, Epiroc applies the rules of the Swedish Compa- Investor AB, held 17.1% of capital and 22.7% of votes at year nies Act, the Swedish Annual Accounts Act, Epiroc’s Articles end. Further details about the company’s shares and share- of Association, Nasdaq Stockholm’s Rule Book for Issuers and holders are presented in the section “The Epiroc share”, see the Swedish Corporate Governance Code (the Code) as well pages 146-147. as other Swedish and foreign laws and regulations, as applicable. The Code applies to all Swedish companies whose Annual General Meeting shares are listed on a regulated market in Sweden and is The Annual General Meeting (AGM) is Epiroc’s highest deci- based on the comply or explain principle. This means that Epi- sion-making body and is where shareholders exercise their roc is not required to apply every rule of the Code at all times, voting rights. Notice of a General Meeting of shareholders is but may choose alternative solutions deemed to better match posted on the Group’s website and published in the Official the circumstances, provided that Epiroc openly discloses all Swedish Post. Information about the notice must be given such deviation, describes the alternative solution and states simultaneously in the two national newspapers, Svenska the reason for the deviation. Epiroc does not report any devia- Dagbladet and Dagens Nyheter. The AGM decides on matters tions from the Code for the fiscal year. The auditor’s statement such as the adoption of Epiroc’s annual accounts, appropri- regarding this report can be found on pages 135–137. ation of the company’s profits and the discharge of Board members and the CEO from liability for the year. The AGM Further information about corporate governance is available also elects members of the Board, elects auditor, votes on at www.epirocgroup.com remuneration for the Board of Directors and auditors and decides on guidelines for determining the salaries and other Corporate Governance structure remuneration for the CEO and Group Management. Further, The following section describes the governance structure the AGM adopts instructions for the Nomination Committee within Epiroc and how corporate governance creates a and its appointment. Shareholders attending the AGM may framework for rules and regulations, areas of responsibil- also ask questions about the Group’s activities. Resolutions ity, processes, and routines that effectively safeguards the passed at a meeting of shareholders are disclosed after the interests of shareholders and other parties by minimizing meeting in a press release, and the minutes of the meeting risks and creating good conditions for a stable expansion of are published on Epiroc’s website. Epiroc’s business. The Annual General Meeting 2021 will be held on April 28 in Nacka, Sweden.

Corporate Governance structure

Shareholders

Nomination Committee Auditor

Annual General Meeting

Remuneration Committee

Board of Directors Audit Committee Repurchase Committee President and CEO, Group Internal Audit Group Management and Assurance

Divisions

64 Epiroc Annual and Sustainability Report 2020 CORPORATE GOVERNANCE REPORT

Nomination Committee the committees are regulated by the committee instructions, The main task of the Nomination Committee is to propose which are reviewed and approved annually. Board members and auditors, as well as remuneration of such persons, and propose the Chairman for the AGM. The Composition Nomination Committee instructions state that the committee, Members of the Board of Directors, except for employee in addition to the Chairman of the Board, shall consist of one representatives, are appointed annually by the AGM for the representative of each of the four shareholders controlling period until the end of the next AGM. According to the Group’s the largest number of votes and which desire to appoint a Articles of Association, the members of the Board of Directors representative. The composition of the committee is based on to be elected by the General Meeting shall consist of a min- ownership statistics on the last day of trading in August 2020. imum of six members and a maximum of twelve members. and there is a mechanism dealing with ownership changes Other than the President and CEO, the employee represen- occurring prior to the AGM. The proposals and the Nomina- tatives and their deputies, none of the Board members are tion Committee’s statement will be published with the notice employed by the Group. Of the non-executive Board mem- to the AGM 2021. bers elected by the AGM, three are women and six are men. The Board members are presented on pages 68-69. The Nomination Committee must conduct its duties in accordance with the Swedish Code of Corporate Governance and The Chairman leads the work, is responsible for ensuring that particularly consider the requirements regarding breadth and the Board’s work is carried out efficiently and that the Board versatility of the appointed Board members’ qualifications, fulfills its obligations in accordance with applicable laws and experience and background. The Nomination Committee has regulations. The Chairman shall monitor the Board’s perfor- in its evaluation of the Board’s composition taken into account mance and prepare and chair the meetings. The Chairman diversity, independence and gender balance. is also responsible for ensuring that the Board of Directors evaluates its work each year and always receives the informa- In accordance with instructions on Epiroc’s website, share- tion necessary to perform its work effectively. The Chairman holders are welcome to present proposals and opinions to the represents the Board in relation to Epiroc’s shareholders. committee. Shareholders who wish to submit proposals can do so by emailing the secretary of the Nomination Committee Work of the Board at [email protected] or by writing to Jörgen Ekelöw, To accomplish its task, the Board’s work follows an annual Epiroc AB, P.O. Box 4015, SE-131 04 Nacka, Sweden. cycle. At the beginning of the year, the Board considers the year-end report and the annual report, as well as matters to The following representatives of Epiroc AB’s shareholders, be submitted to the AGM. Each year, the Board reviews the together with the Chairman of the Board, Ronnie Leten, form strategic direction of the Group as well as the business plan the Nomination Committee for the Annual General Meeting and targets for the year ahead. The Group’s principal audi- 2021: tor also presents the annual audit. Every quarter, the Board • Petra Hedengran – Investor AB (Chair) reviews the Group’s earnings and interim reports. An inau- • Mikael Wiberg – Alecta gural Board meeting is held in connection with the AGM at • Helen Fasth Gillstedt – Handelsbanken funds which members of the Board’s committees are appointed and • Jan Andersson – Swedbank Robur funds matters such as the right to sign on behalf of the company are decided. Business presentations and/or presentations on Board of Directors certain matters are a typical feature of Board meetings. The The Board of Directors is Epiroc’s highest decision-making Board evaluates the performance of the President and CEO body below the AGM. The Board is charged with the organi- and also follows up on the compliance of the Code of Con- zation of the Group and management of the Group’s affairs. duct during the year. The Board’s tasks include adopting strategies, business plans, interim reports, year-end reports, annual financial The Board held eight meetings in 2020, including the inau- statements and certain instructions, policies and guide- gural meeting, and issued two per capsulam resolutions. The lines. The Board is also required to monitor economic and attendance at Board meetings is presented on page 67. The societal developments, identifying positive and negative General Counsel acted as secretary at the Board meetings. In sustainability impacts of the business on society, to report the year, the Board has continuously been informed about the yearly on its progress in regards to sustainability, to ensure Covid-19 situation and the actions taken. the quality of financial reporting and internal controls and to evaluate operations based on the objectives and guidelines Evaluation of the Board set by the Board. Additional targets include deciding on the The annual evaluation of the Board of Directors’ work, includ- Group’s major investments, acquisitions and divestments, ing the Board’s committees’, was conducted by the Chairman and other changes in the organization and its activities. The through a questionnaire and a follow-up discussion with each Board adopts instructions for the Board’s committees and an Board member. The evaluation included working procedures, instruction for the President and CEO, as well as an instruction competence and composition of the Board as well as the for the financial reporting. experience and diversity of the Board members. The findings were presented to the Nomination Committee. The work of the Board follows written rules of procedure to ensure that the Board obtains information on all issues, and Remuneration of the Board of Directors that all aspects of the Group’s activities relating to the Board Remuneration and fees are based on the work done by the are addressed. Board. The AGM held on May 12, 2020, resolved that remuneration to the Board members elected by the General Meet- The Board has three Board committees as part of efforts to ing should be as follows: strengthen the efficiency on certain issues: a Remuneration Committee, an Audit Committee and a Repurchasing Com- • SEK 2 050 000 to the chair of the board and SEK 640 000 mittee. The committees have a preparatory and administra- to each of the other directors, tive role and members are appointed for one year at a time at the inaugural Board meeting. The work and authority of

Epiroc Annual and Sustainability Report 2020 65 CORPORATE GOVERNANCE REPORT

As well as compensation for committee service of: The Remuneration Committee must consist of three mem- • SEK 260 000 to the chair of the audit committee and bers who may not be employees of the Group. The Chairman SEK 175 000 to each one of the other members of this of the Board chairs the committee. The other members must committee. be independent in relation to the Group and its management. • SEK 125 000 to the chair of the remuneration committee The Remuneration Committee consists of Ronnie Leten and SEK 90 000 to each one of the other members of this (chair), Lennart Evrell and Johan Forssell. Lennart Evrell and committee. Johan Forssell are independent in relation to the Group and • SEK 70 000 to each non-executive director who, in addition, its management. participates in committee work decided upon by the board. Remuneration of the President and The AGM resolved that 50% of the director’s board fee may be CEO and Group Management received in the form of synthetic shares in accordance with The remuneration of Epiroc’s senior executives may consist the Nomination Committee proposal. See also note 5. of a base salary, variable compensation, long-term incentive programs, pension contributions and additional benefits. Audit Committee The Audit Committee supports the Board in its role of super- The base salary should reflect the position, qualification and vising auditing and internal control issues. The committee is individual performance. Variable compensation should be responsible for monitoring the Group’s financial reporting, contingent on the extent to which predetermined quantita- financial risk management and internal control, as well as tive and qualitative goals are met. Variable compensation is accounting and auditing. The Audit Committee has regu- limited to a maximum of 70% of the base salary. lar dialogue with the Group’s auditor and has at least one meeting per year with the auditor when management is not In the event of termination of employment of a senior execu- present. It also reviews and monitors the auditor’s impartiality tive by the Group, compensation amounts to a maximum of and independence, other services provided by the Group’s 24 months’ base salary depending on age, length of employ- auditor and assists the Nomination Committee with the pro- ment and possible income from other economic activity or posal for the election of the auditor. The Audit Committee employment. See note 5 for information about the remunera- has functional responsibility over Epiroc Group Internal Audit tion during 2020. and Assurance. The committee is responsible for reviewing and monitoring this function’s independence and objectivity, Performance based incentive programs as well as the effectiveness of the activities carried forward, The Board considers it to be in the best interest of sharehold- such as the yearly internal audit plan. ers that key personnel in Epiroc have a long-term interest in a positive development in the value of the company’s shares. The Audit Committee must consist of at least three members, This applies in particular to the group of key personnel of whom a majority must be independent in relation to the comprising the senior executives. The Board also believes a Group and its management. The Audit Committee consists of share-related options program increases the attractiveness Ulla Litzén (chair), Anders Ullberg, Ronnie Leten and Lennart of Epiroc in the global market and enhances the possibility Evrell. As from October 2020, Lennart Evrell was appointed of recruiting and retaining key personnel in the Group. Epi- member of the Committee. Ulla Litzén, Anders Ullberg and roc’s 2020 AGM approved a performance-based personnel Lennart Evrell are independent in relation to the Group and its options plan for 2020. The options plan is directed at a max- management. imum of 100 key employees. For further information on the incentive programs, see note 24. Remuneration Committee The principal function of the Remuneration Committee is to Repurchase Committee propose to the Board principles of remuneration and other The Board of Directors has a Repurchase Committee to pre- employment terms for members of Group Management, pare and execute repurchases of the company’s own shares including a proposal for remuneration to the President and in accordance with the AGM’s authorization of the Board of CEO, and to approve remuneration and other employment Directors to conduct such repurchases, see note 20. The conditions for the other members of the Group Management. Repurchase Committee consists of Anders Ullberg (chair) The Remuneration Committee also handles remuneration and Ronnie Leten. matters of principle importance such as proposals of long- term incentive plans for key employees.

Board work 2020 in brief

Q1 Q2

January 30 February 28 April 22 May 12 • Q4 and full-year 2019 • Approval of the • Q1 2020 • Annual General Meeting results Annual Report results • Inaugural Board meeting • Evaluation of the 2019 • Review of the Group’s strategy President and CEO’s • Annual General performance Meeting preparation

66 Epiroc Annual and Sustainability Report 2020 CORPORATE GOVERNANCE REPORT

President and CEO, Group Management The role of Group Management is to establish strategies The Group President and Chief Executive Officer (CEO) is and policies for the Group based on the objectives set by the appointed by the Board of Directors. The President and CEO Board. Group Management sets targets for operational activi- is responsible for the ongoing management of the Group’s ties, allocates resources and monitors earnings. The manage- business operations in accordance with instructions and reg- ment team is also responsible for investment planning and ulations established by the Board. These instructions include follow-up, acquisitions and divestments, and for preparations responsibility for financial reporting, preparation of informa- for Board meetings. Group Management meets monthly to tion and input for decisions, and ensuring that agreements review the financial performance of the preceding month, and other measures do not conflict with applicable legislation update forecasts and plans, and to discuss strategic issues. or regulations. Auditor The CEO appoints a Group Management team that is respon- The task of the external auditor is to audit the Group’s annual sible for different parts of the organization. As per December report and accounts, the consolidated financial statements 31, 2020, in addition to Helena Hedblom, President and CEO, and the significant subsidiaries, as well as the management the management team consisted of Anders Lindén, Senior by the Board of Directors and the President and CEO. After the Vice President (CFO), José Manuel Sánchez, President Sur- end of each fiscal year, the auditor submits an audit report to face division, Sami Niiranen, President Underground division, the AGM. The principal auditor participates at all meetings of Jess Kindler, President Parts & Services division, Jonas Albert- the Audit Committee. The auditor also presents the annual son, President Technology & Digital division, Goran Popovski, audit to a meeting of the Board of Directors at which the President Tools & Attachments division, Nadim Penser, Senior Board also meets the auditor without management being Vice President Human Resources, Jörgen Ekelöw, Senior Vice present. President General Counsel, Mattias Olsson, Senior Vice Pres- ident Corporate Communication, and Martin Hjerpe, Senior At the AGM 2020 the auditor Deloitte AB, Sweden, was Vice President M&A and Strategy. As from March 1, 2020, elected as external auditor until the AGM 2021 in accordance Helena Hedblom serves as President and CEO. For the period with the Nomination Committee’s proposal. The principal to this date, Per Lindberg was the President and CEO. auditor is Thomas Strömberg, Authorized Public Accountant at Deloitte AB.

Attendance Board Per capsulam Audit Remuneration Repurchase meetings resolutions Committee Committee Committee Ronnie Leten 8 2 5 4 3 Anders Ullberg 8 2 5 3 Astrid Skarheim Onsum 8 2 Jeane Hull 8 2 Johan Forssell 8 2 4 Lennart Evrell 8 2 1 4 Sigurd Mareels1 6 Ulla Litzén 7 2 4 Helena Hedblom2 7 Per Lindberg2 1 1 Bengt Lindgren3 4 1 Kristina Kanestad 8 2 Daniel Rundgren3 8 1 Gustav El Rachidi 8 Niclas Bergström3 1 8 2 5 4 3

1) Sigurd Mareels was elected board member at the AGM in May 2020. 2) Helena Hedblom was appointed President and CEO as from March 1, when Per Lindberg stepped down. 3) Bengt Lindgren retired on August 31, 2020. Daniel Rundgren was appointed employee representative (previously deputy) with Niclas Bergström as his deputy on October 28, 2020.

Q3 Q4

July 22 September 15-17 October 22 December 16 • Q2 2020 results • Virtual field trip with focus • Q3 2020 results • Digitalization review • Review of sustainability and on innovation • Management review corporate responsibility • Leadership and talent review

Epiroc Annual and Sustainability Report 2020 67 CORPORATE GOVERNANCE REPORT Board of Directors

Ronnie Leten Johan Forssell Anders Ullberg Ulla Litzén Lennart Evrell Jeane Hull Astrid Helena Hedblom Sigurd Mareels Skarheim Onsum

Function / Since Chairman Board member Board member Board member Board member Board member Board member Board member Board member Elected 2017 Elected 2017 Elected 2017 Elected 2017 Elected 2017 Elected 2018 Elected 2018 Elected 2020 Elected 2020

Nationality / Born Belgian / 1956 Swedish / 1971 Swedish / 1946 Swedish / 1956 Swedish / 1954 American / 1955 Norwegian / 1970 Swedish / 1973 Belgian / 1961

Education M.Sc. in Applied Eco- M.Sc. in Economics and M.Sc. in Economics and M.Sc. in Economics and M.Sc. in Engineering B.Sc. in Civil Engineer- M.Sc. in Mechanical M.Sc. in Material M.Sc. in Engineering and a nomics from the Univer- Business Administra- Business Administra- Business Administra- from the Royal Institute ing from South Dakota Engineering from Technology from PhD in Metallurgy, Ghent sity of Hasselt, Belgium. tion from the Stockholm tion from the Stockholm tion from the Stockholm of Technology (KTH) School of Mines and the Norwegian the Royal Institute of University, Belgium School of Economics, School of Economics, School of Economics, and a B.Sc. in Business Technology and MBA University of Science Technology, Stockholm, Sweden. Sweden. Sweden, and MBA from Administration from from Nova Southeast- and Technology in Sweden the Massachusetts Insti- Uppsala University, both ern University, both in Trondheim, Norway. tute of Technology (MIT) in Sweden. the United States. in the United States.

External Chairman and member President and CEO, and Chairman and member Member of the Boards Member of the Boards Member of the Boards CEO of Aker Offshore Member of the Board of memberships of the Boards of Directors member of the Board of the Boards of of Directors of AB Elec- of Directors of Svenska of Directors of Interfor Wind. Member of the Directors of IPCO AB. of Telefonaktiebolaget of Directors, of Investor Directors of Boliden AB trolux, Husqvarna AB and Cellulosa AB (SCA), Corporation and Board of Principle LM Ericsson and Piab AB and a member of and Studsvik AB and a Ratos AB. ICA Gruppen AB and Pretium Resources Power Inc. AB, and member of the the Boards of Directors member of the Boards of The Confederation Incorporated. Board of Directors of of Atlas Copco AB, of Directors of Beijer of Swedish Enterprise AB SKF. Wärtsilä Oyj Abp, Alma AB and Valedo (Svenskt Näringsliv). Patricia Industries AB, Partners. Chairman of EQT AB, Confederation of the Swedish Financial Swedish Enterprise and Reporting Board and a Stockholm School of member of the Board of Economics. the European Financial Reporting Advisory Group.

Principal work President and CEO of Managing Director, Head Executive Vice President President of W Capital President and CEO of Executive Vice Presi- Head of Wind Energy, President and CEO of Senior Partner at McKinsey experience and Atlas Copco AB. of Core Investments, of and CFO and President Management AB and Boliden AB. dent and Chief Techni- Chief Digital Officer and Epiroc AB. She previ- in Belgium. other information Investor AB. and CEO of SSAB AB. Managing Director cal Officer of Peabody Managing Director of the ously held the position and member of Group Energy and Chief Norwegian engineering of Senior Executive Vice Management of Investor Operating Officer for Rio business at Aker Solutions. President Mining and AB. Tinto at the Kennecott Infrastructure. Utah Copper Mine in the United States.

Independence No 1) Yes Yes Yes Yes Yes Yes No 5) Yes to Epiroc and its management

Independence to No 2) No 4) Yes Yes Yes Yes Yes Yes Yes major shareholders

Holdings in 11 308 A shares 5 000 B shares 14 000 A shares 75 800 A shares 4 000 B shares 3 617 Synthetic shares 9 076 Synthetic shares 21 379 A shares 2 035 Synthetic shares Epiroc AB, 55 650 B shares 8 156 Synthetic shares 31 000 B shares 3 000 B shares 5 459 Synthetic shares 189 758 Personnel incl. related parties 112 234 Call options 3) options 12 015 Matching options

Principal working experience and other information and holdings in Epiroc AB as per December 31, 2020. Holdings include those of close relatives and legal entities.

1) Ronnie Leten has been President and CEO of a closely related company (Atlas Copco) within the last five years. 2) Ronnie Leten has a consultancy agreement with Investor AB, which is a major shareholder. 3) Call options issued by Investor AB entitling to purchase Epiroc Class A shares. 4) Johan Forssell is President and CEO of Investor AB, which is a major shareholder. 5) Helena Hedblom is President and CEO of Epiroc AB as from March 1, 2020.

68 Epiroc Annual and Sustainability Report 2020 CORPORATE GOVERNANCE REPORT

Ronnie Leten Johan Forssell Anders Ullberg Ulla Litzén Lennart Evrell Jeane Hull Astrid Helena Hedblom Sigurd Mareels Skarheim Onsum

Nationality / Born Belgian / 1956 Swedish / 1971 Swedish / 1946 Swedish / 1956 Swedish / 1954 American / 1955 Norwegian / 1970 Swedish / 1973 Belgian / 1961

Independence No 1) Yes Yes Yes Yes Yes Yes No 5) Yes to Epiroc and its management

Independence to No 2) No 4) Yes Yes Yes Yes Yes Yes Yes major shareholders

Employee Kristina Kanestad Gustav El Rachidi Daniel Rundgren Niclas Bergström representatives Board member, Deputy employee Board member, Deputy employee employee representative employee representative representative Appointed 2018 Appointed 2019 Appointed 2020 Appointed 2018 Nationality / Born Nationality / Born Nationality / Born Nationality / Born Swedish / 1970 Swedish / 1973 Swedish / 1969 Swedish / 1966 Holdings in Epiroc AB Holdings in Epiroc AB Holdings in Epiroc AB Holdings in Epiroc AB – – – 1 200 B shares

Epiroc Annual and Sustainability Report 2020 69 CORPORATE GOVERNANCE REPORT Group Management

Helena Hedblom Anders Lindén José Manuel Sami Niiranen Jess Kindler Jonas Albertson Goran Popovski Nadim Penser Jörgen Ekelöw Martin Hjerpe Mattias Olsson Sánchez

Function / Since President and Senior Vice President Surface President President Parts & President President Tools & Senior Vice Senior Vice Senior Vice Senior Vice CEO President division Underground Services division Technology & Attachments division President Human President President M&A President Corporate In current position Controlling and Division President division Division President Digital division Division President Resources General Counsel and Strategy Communications since 2020 Finance (CFO) since 2014 and Division President since 2016 and Division President since 2017 and Member of Group In current position In current position In current position In current position member of Group since 2018 and member of Group since 2016 and member of Group Management since 2017 since 2019 since 2018 since 2017 Management since member of Group Management since member of Group Management since since 2020. 2020. Management since 2020 Management since 2020. 2020 2020.

Nationality / Born Swedish / 1973 Swedish / 1962 Spanish / 1963 Finnish / 1972 American / 1975 Swedish / 1967 Swedish and Swedish / 1967 Swedish / 1955 Swedish / 1976 Swedish / 1968 Macedonian / 1974

Education M.Sc. in Material B.Sc. in Econom- M. Sc. in Mining from M. Sc. in Mining from B. Sc. in Mining M. Sc. in Mechanical M. Sc. in Interna- B. Sc. in Physics Master of Law M.Sc. in M.Sc. in Business Technology from ics and Business Universidad Poli- Helsinki University Engineering from Engineering from tional Business and Electronic from Lund Engineering Administration from the Royal Institute Administration técnica de Madrid, of Technology, Colorado School of Chalmers University, from University of Engineering from University, Physics from the University of of Technology, from the Stock- Spain. Master of Finland. Mines and an MBA Sweden. Gothenburg, M. University of Lan- Sweden. Chalmers Linköping, Sweden. Stockholm, holm School Marketing and Sales from the University Sc. in International caster, England. University of Sweden. of Economics, Management from of Pennsylvania, transport and logis- Technology, Sweden. Cerem International Wharton School of tics management Sweden. Business School, Business. from University of Spain. Gothenburg and Chalmers Univer- sity of Technology, Sweden. B. Sc. in Marketing and Inter- national Business from University St. Kiril and Metódij in Skopje, Republic of Macedonia.

Principal work Member of the Vice President President of the President of the President of the President of the President of the Vice President General Counsel Partner at Head of Inves- experience and Board of Directors Business Control Drilling Solutions Underground Rock Mining and Rock Rocktec division and Hydraulic Attach- Human Resources M&A and Global McKinsey & tor Relations at other information of IPCO AB. of Atlas Copco division and various Excavation division Excavation Service Managing Director ment Tools division for the Epiroc Projects at Atlas Company. Assa Abloy. Vice Previously Senior Mining and management posi- and various man- division and various of Epiroc Rock Drills and various man- Mining and Infra- Copco. President Investor Executive Vice Rock Excavation tions at Atlas Copco. agement positions management posi- AB, in Sweden. Vari- agement positions structure business Relations at Atlas President Mining Technique at Atlas Copco. tions at Atlas Copco. ous management at Atlas Copco. area. Various Copco. and Infrastructure. business area. positions at Atlas management Copco. positions in human resources at Atlas Copco.

Holdings in Epiroc 21 379 A shares 8 965 A shares 16 724 A shares 3 751 A shares 16 724 A shares 7 266 A shares 7 165 A shares 1 750 A shares 7 921 A shares 8 500 A shares 5 294 A shares AB, incl. related 189 758 Personnel 64 359 Personnel 275 944 Personnel 39 261 Personnel 62 512 Personnel 62 512 Personnel 102 664 Personnel 97 325 Personnel 90 972 Personnel 23 507 Personnel 1 200 B shares parties options options options options options options options options options options 57 904 Personnel 12 015 Matching 5 614 Matching 11 127 Matching 1 751 Matching 10 651 Matching 5 664 Matching 4 774 Matching 4 755 Matching 3 226 Matching options options options options options options options options options options 3 594 Matching options

Principal working experience and other information and holdings in Epiroc AB as per December 31, 2020. Holdings include those of close relatives and legal entities. For some members, the matching options and stock options are in the form of Share Appreciation Rights (SARs).

70 Epiroc Annual and Sustainability Report 2020 CORPORATE GOVERNANCE REPORT

Helena Hedblom Anders Lindén José Manuel Sami Niiranen Jess Kindler Jonas Albertson Goran Popovski Nadim Penser Jörgen Ekelöw Martin Hjerpe Mattias Olsson Sánchez

Nationality / Born Swedish / 1973 Swedish / 1962 Spanish / 1963 Finnish / 1972 American / 1975 Swedish / 1967 Swedish and Swedish / 1967 Swedish / 1955 Swedish / 1976 Swedish / 1968 Macedonian / 1974

Epiroc Annual and Sustainability Report 2020 71 CORPORATE GOVERNANCE REPORT Internal control and risk management for financial reporting

This section includes a description of Epiroc’s system of internal controls for financial reporting in accordance with the requirements set forth in the Swedish Corporate Governance Code and as stipulated by the Swedish Companies Act.

This section includes a description of Epiroc’s system 2. Risk assessment of internal controls for financial reporting in accordance An assessment of financial reporting risks is conducted with the requirements set forth in the Swedish Corporate annually and control activities are either reinforced or imple- Governance Code and as stipulated by the Swedish Com- mented. The key risk areas for Epiroc’s financial reporting are panies Act. presented on the next page.

Epiroc’s internal control system for financial reporting is 3. Control activities designed to manage risks and to ensure a high level of Epiroc’s control activities are established to mitigate financial reliability in the preparation of financial reports, and to reporting risks. Control activities are performed at all levels of ensure that applicable accounting principles and other Epiroc and at various stages of the business processes. requirements as a publicly listed company are properly applied. Epiroc’s processes have been established based 4. Information and communication on the regulatory framework for internal control issued by Epiroc has information and communication channels the Committee of Sponsoring Organizations of the Tread- designed to ensure that information is identified, captured way Commission (COSO). COSO’s components are imple- and communicated in a form and timeframe that enable mented at Epiroc as presented below. employees and managers to fulfill their responsibilities. Examples of information and communication in Epiroc are: 1. Control environment Group policies and guidelines communicated through The The basis for Epiroc’s internal control framework is defined Epiroc Way (intranet), business review meetings and training. by the overall control environment. The Board of Direc- tors is responsible for establishing an efficient system for 5. Monitoring internal control and governs this work through the Audit Ongoing and specific evaluations are carried out to ascer- Committee. Group Management sets the tone for the tain that the five components of Epiroc’s internal control organization, influencing the control consciousness of framework are functioning. Epiroc’s monitoring activities employees. One key success factor for a strong control include independent internal audits, review of balance sheet environment is ensuring that the organizational structure, accounting reconciliations, reviews of financial information decision hierarchy, corporate values in terms of ethics and and financial performance and monthly management meet- integrity, and authority to act are clearly defined and com- ings. Observations of suspected deficiencies are evaluated municated through guiding documents such as internal and are communicated in a timely manner. Deficiencies of policies, guidelines and Epiroc Code of Conduct. material importance are reported to the Group Management team, the Audit Committee and/or the Board of Directors.

Epiroc’s internal control framework 2. Risk Assessment

1. 3. 5. Control Control Monitoring environment Activities

4. Information and Commu- nication

72 Epiroc Annual and Sustainability Report 2020 CORPORATE GOVERNANCE REPORT

Key financial reporting risks Control activities

Inventory is not appropriately • Inventories are appropriately reconciled at each reporting date. valued at the lower of cost • Inventory costs and production variances are reviewed and approved by the or net realizable value divisions and net realizable values are compared to carrying values to identify need for adjustments of inventory values. • Inventory levels and saleability of inventory are assessed at each reporting date.

Income taxes are not accounted • Tax calculations are prepared and reviewed at each reporting date. for in accordance with • The effective tax rate for each company is analyzed at each reporting date by applicable tax legislation Group Tax. • Compliance with transfer pricing policies is monitored regularly. • Ongoing tax audits and disputes are monitored and provision levels are evaluated by Group tax specialists.

Provision for bad debt is • A strong process and tools are in place for collection of accounts receivable. not calculated based on • Bad debt provision calculation guidelines are available in the Group’s intranet. Group guidelines • Bad debt provision needs are recalculated and booked during each reporting cycle. • Independent Balance Sheet reviews are conducted to ensure the entity has followed Group guidelines when calculating provisions.

Provision for inventory • Automated reports for calculation of the inventory obsolescence provision are obsolescence is not calculated in place. based on Group guidelines • Inventory obsolescence provision calculation guidelines are available in the Group’s intranet. • Inventory obsolescence provision needs are recalculated and booked during each reporting cycle. • Independent Balance Sheet reviews are conducted to ensure the entity has followed Group guidelines when calculating provisions.

Balance Sheet account • A standard template for Balance Sheet account reconciliations has been reconciliations are not created and rolled out throughout the organization. properly documented. • All internal audits include a Balance Sheet review. All issues identified must be Balances are not justified. addressed within a six months period. • Epiroc is committed to have a formal Balance Sheet review in all its entities within a period of two years. 60 entities are subject to review on a yearly basis. • Balance Sheet reconciliations are done monthly at operational level.

Reporting processes • A documented manual of the business system and financial system used exist and procedures are not and is updated accordingly. well documented • Period end closing checklists exist, are maintained and used for financial reporting tasks. Management reviews the completed checklists on a timely basis.

Implementation of new IFRS • New IFRS standards applicable to Epiroc are known prior to their effective standards is not done accordingly date. • Group Financial Reporting leads the implementation of new IFRS standards and sets a plan for all levels impacted. • Training for local finance teams is done. • Group guidelines are updated to reflect the requirements for the new IFRS standards.

Epiroc Annual and Sustainability Report 2020 73 RISK MANAGEMENT Balanced risk- taking and efficient risk management

74 Epiroc Annual and Sustainability Report 2020 RISK MANAGEMENT

All business activities involve risk. Epiroc views efficient risk management both from a risk reduction and a business opportunity perspective in order to reduce the probability and severity of damage and losses and to enable profitable growth.

Epiroc’s products and services are sold in more than 150 have a material adverse effect on the Group’s business, finan- countries, with principal product development and manu- cial condition and results of operations. facturing units located in Sweden, the United States, China, South Africa, India, Germany and Canada. Epiroc focuses Enterprise Risk Management on applications in mining and infrastructure where there is a Epiroc applies an enterprise risk management system to need for performance-critical equipment and services, with map Group risks. The system is applied to divisions. Risks significant aftermarket requirements over the equipment are hereby identified based on each divisional management lifecycle and where customers focus on productivity and total team’s knowledge of its business and area of responsibil- cost of ownership. Hence, the global business entails a variety ity. The ownership of managing the risks raised in the risk of risks and opportunities. Epiroc’s ability to prevent, detect mappings lies with each division, while the Insurance & Risk and manage the risks is crucial for effective governance and Management department manages the overall process, control of the business. moderates the sessions and, together with Group Manage- ment, consolidates the results at Group level. In addition, risk Responsibilities mappings are carried out at Group level for IT, legal, sustain- It is the responsibility of the Board of Directors to ensure that ability and for financial reporting through own analysis and there is an appropriate system and appropriate guidelines for discussions with stakeholders. Results of risk mappings are follow-up and internal control of Epiroc’s operations and the reported to Group Management and to the Board of Directors. risks that are associated with its operations. The risk manage- The Board addresses risks and risk management annually. ment system at Epiroc follows the decentralized structure of the Group. Local companies are responsible for their own risk Task Force on Climate-Related management, which is monitored and followed up regularly Financial Risk Disclosures (TCFD) at local business board meetings. In addition, an enterprise We are improving the dialogue with investors by providing risk management system is applied to map Group risks. Group analysis of the implications of climate change on our business functions for legal, insurance, treasury, tax, controlling and and opportunities that a shift to a low-carbon economy brings accounting, and communications provide policies, guidelines to Epiroc. A structured approach to identifying and manag- and instructions regarding risk management. ing these risks, through the recommendations of the TCFD, Financial risk policies and compliance functions were brings clarity, transparency and comparability in ways that are established and became effective in January 2018. The Board relevant to the investor community. of Directors have adopted the overall financial policies and Epiroc is therefore in the process of aligning its approach to monitors compliance to the policies. The Group’s Financial TCFD guidelines. We are identifying and managing risks and Risk Management Committee (FRMC) manages the Group’s opportunities to Epiroc and specifying how these are embed- financial risks within the mandate given by the Board of Direc- ded in our company governance and risk management pro- tors. The members of the FRMC are the CEO, CFO, Group cesses. This work will continue in 2021. Treasurer, and Manager Treasury Control. The FRMC meet on Epiroc is also following developments in sustainable a quarterly basis or more frequently if circumstances require. investing. We are aware of the impact that the EU Taxon- The Audit Committee receives reports from the FRMC at omy will have on the investment landscape. each meeting. Group Treasury has the operational responsibility for financial risk management in the Group. Group Treasury manages and controls financial risk exposures, ensures that appropriate financing is in place through loans and committed credit facilities, and manages the Group’s liquidity. Read more about financial risk management in note 28. The implementation of policies, guidelines and instructions covering financial reporting and financial risk management is controlled regularly by internal audits. The crisis management process is managed by Corpo- rate Communications. It is rolled out to all entities and each disruptive or unexpected event should, as far as possible, be handled close to the incident origin.

Insurance As of June 1, 2018, Epiroc is covered by its own insurance programs. The insurance programs cover, inter alia, property and business interruptions insurance, product liability insurance, cargo insurance, financial lines insurance, business travel insurance and specialty risk insurance, to the extent and for amounts considered to be in line with industry practice. However, the Group is not fully insured against all possible risks and insurance coverage for all types of risks may not be available at a reasonable cost or at all. Hence, if there were to occur an accident causing damage in excess of the applicable insurance limits or not covered by insurance, this could

Epiroc Annual and Sustainability Report 2020 75 RISK MANAGEMENT Key risks

Group key risks The risks have been assessed, and on pages 78–79, the highlighted risks that are key risks for the Group are presented. These risks are presented in more detail, including context, risk mitigation actions and activities as well as opportunities.

Risk overview, with key risks marked with

Strategic risks

Market • Products and services are used in industries which are either cyclical or affected by general economic conditions. • Mineral commodity prices are volatile and may impact demand for Epiroc’s products and services.

Competition • Highly competitive markets. • Competitors continue to consolidate.

Regulatory and • Regulatory and other risks associated with international operations. political • Operating in complex markets with various political, economic and social conditions where changes in the political situation in a region or country can affect an industry or company. • Pandemics and potential following political regulations and restrictions could significantly impact Epiroc’s operations, for instance the production and supply of equipment and aftermarket services, as well as customers and suppliers.

Environment • Physical changes in climate, changes in regulations, taxes and resource prices, and climate pollution, and access to natural resources, such as energy, water and raw material.

76 Epiroc Annual and Sustainability Report 2020 RISK MANAGEMENT

Risk overview, with key risks marked with

Operational risks

Product • Failing to develop, launch and market new products or respond to development technological development and customer demand for sustainable products.

Production • Manufacturing and production facilities may be damaged, destroyed or closed.

Distribution • Epiroc is dependent on the efficiency of its distribution centers and its customer centers’ sales and service organization.

Supply chain • Epiroc relies on third party suppliers. Interruption and lack of capacity could affect deliveries. • Risks may arise if suppliers do not comply with Epiroc Code of Conduct.

Acquisitions and • Difficulties in completing acquisitions, integrating acquired businesses and divestments achieving anticipated synergies, as well as in completing divestments.

Employee • Risk of not being able to attract and retain key personnel or skilled employees. • Work stoppages or strikes. • A widespread pandemic could affect the health of our employees and impair their ability to perform their job.

Human rights • Epiroc operates in countries where violations of human rights occur and encounters customers, which are also exposed to human rights issues.

• Negative public perceptions of Epiroc or its business partners and customers Reputation due to inadequate compliance with internationally accepted ethical, social and environmental standards could harm the reputation. • May be exposed to product liability and warranty claims. • Complaints and litigation could damage Epiroc’s brand and reputation and divert management resources.

Information • Epiroc could experience a failure in or breach of its operational or informa- technology (IT) tion security systems and may encounter problems relating to storage and processing of personal data. • Epiroc may be unable to protect its intellectual property. • Risk with dependency on IT-systems in operations.

Corruption • Epiroc’s governance, internal controls and compliance processes may not and fraud prevent corruption and fraud.

Insurance • Epiroc’s insurance policies may provide insufficient protection.

Environment • Not actively reducing negative environmental impact may negatively affect operations either directly or by disrupting the supply chain. • Inadequate environmental compliance can lead to substantial fines.

Safety and health • Inadequate adherence to safety and health regulations can lead to accidents causing harm to people, and negatively impact productivity and brand.

Legal risks and compliance

• Epiroc’s governance, internal controls and compliance processes may not prevent regulatory penalties, trade compliance and fraud.

• Epiroc is also subject to competition and antitrust laws and inspections.

Financial risks

• Financial risks include reporting risks, i.e. risk that reports do not give a fair view of Epiroc´s financial position and results. Financial risks also include currency risk, credit and counterparty risk, hedging risks, commodity price risk, taxation risk and financing risk, i.e. the risk of Epiroc encountering difficulties in repaying its debts and financing its operations. There is also a risk that impairment of goodwill or other intangible assets will adversely affect the financial results. There is a risk that Epiroc´s future results of operations may differ materially from the financial goals set by the company. An emerging financial risk is that investors exit investments that present a high sustainability-related and climate risk, for example coal.

Epiroc Annual and Sustainability Report 2020 77 RISK MANAGEMENT

Key risk and context Risk mitigation Opportunities

Market Equipment and services are used in industries A flexible setup in manufacturing in which a Lean initiatives in the manufacturing enable which are affected by general economic con- large share of the components used in the a more agile setup with enhanced flexibility. ditions and mineral commodity prices, which assembly of equipment is purchased from Opportunity to further develop the may impact demand for Epiroc’s equipment and suppliers. A significant aftermarket require- aftermarket business. This will enhance the services. ment over the equipment lifecycle creates resilience of the business. a large and resilient service business.

Competition The markets are highly competitive in terms of Continuous analyses and monitoring of Development of high quality solutions that pricing, product design and service quality, the market external factors and customer pref- are in line with customer demands such as timing of development and introduction of new erences in order to compete successfully increased productivity and lower total cost products, customer service, and financing terms and anticipate and respond to changes of ownership. and conditions. in evolving market demands, including Opportunities to continuously increase Intense competition from significant compet- demand for new products, see product operational efficiency and lower costs itors and, to a lesser extent, from small regional development risks below. of operations and improve competitive companies and also, increasingly, from compa- position. nies operating with lower costs and margins.

Product development Several markets are characterized by technolog- Continuous investments in research and Substantial opportunities to strengthen ical advances and changes in customer prefer- development to develop products in line competitive edge by innovating high qual- ences. Failure to develop, launch and market new with customer demand and expectations, ity, sustainable products and creating an products in response to customer demands for even during economic downturns. integrated value proposition for customers productivity and sustainability. Designing products with a lifecycle as well as meeting external environmental Product development is also affected by perspective and measurable efficiency risks. legislation on matters such as emissions, noise, targets for the main product categories. Implementation of our 2030 sustain- vibrations and recycling. This may increase the Designing products with reduced emis- ability goals lead the organization towards risk of competition in emerging markets where sions, vibrations or noise and increased halving CO2 emissions in operations, trans- such legislation is sometimes less strict. recycling potential to meet legislative port and use of products. Substitution of existing Epiroc products and requirements. Promote the integration of the Sustain- services with lower-emission options from Start using the recommendation from able Development Goals in operations. competitors. TCFD to better understand and improve Battery technologies and connected reporting on climate change risks. equipment are two prime areas where we can add value and help drive the transition to low-carbon solutions.

Supply chain Incorrect deliveries, failure to fulfil deliveries or Select and evaluate business partners on Further increase business agility and inadequate capacity at suppliers could cause the basis of objective factors including reduce costs by improving supplier inven- delays or failures in deliveries, which in turn may quality, delivery, price, and reliability, as tory management in response to changes cause reduced sales and a decline in customer well as commitment to environmental and in demand. confidence. social performance. Continue to be a preferred business part- Supply interruptions could arise from short- Establishment of a global network ner and promote efficiency, sustainability ages of raw materials, labor disputes, and of sub-suppliers, to prevent supplier and safety. Good supplier relations help to weather conditions affecting products or ship- dependency. improve Epiroc´s competitive position. ments, transportation disruptions or other factors Providing suppliers with timely and Promote human rights and work towards beyond Epiroc’s control. sufficient information in order to manage improving labor conditions, reducing the Risk that Epiroc’s business partners do not changes in volumes. risk of corruption and conflicts. share the same values as expressed in Epiroc Business partners to sign a Business Opportunity to strengthen customer Code of Conduct. Partner Criteria Letter and the Code of relationships by being ready to support Risk that products contain components which Conduct. customers that are impacted by the Dodd are not sustainably produced, for instance the Continue the process to investigate and Frank legislation on conflict minerals. presence of conflict minerals in electronic remove the potential presence of conflict Implementation of our 2030 sustain- components. minerals in the value chain. ability goals lead towards halving CO2 emissions in operations, transport and use of products, and ensuring compliance with our Code of Conduct Promote the integration of the Sustain- able Development Goals in operations.

Employee Given that Epiroc continuously introduce new or Mapping of competences and require- Opportunity to set ambitious targets for enhanced products, it is important that the comments is continuously carried out to ensure employees and managers, aligned with pany is able to attract people with expertise in its access to people with the right expertise at business targets, and then give them the product areas and in research and development. the right time. freedom to deliver, with accountability for If Epiroc fails to monitor its need for employees Recruitment can take place both exter- results. or if it fails to continue to attract and retain highly nally and internally. Internal recruitment Motivated and skilled employees and qualified management and other skilled employ- and job rotation are facilitated by an inter- managers are crucial to achieve or exceed ees on acceptable terms it may not be able to nal job market. business targets. sustain or further develop parts of its business. Salaries and other conditions are Much attention is spent on searching for A widespread pandemic could affect the adapted to the market and linked to busi- and recruiting a high-performing, diverse health of our employees and impair their ability to ness priorities. Epiroc strives to maintain workforce that will thrive in an environment perform their job. good relationships with unions. of trust and individual responsibility. An employee survey is carried out every Implementation of our 2030 sustain- year and followed up actively. ability goals lead the organization towards When pandemics such as Covid-19 improved safety and increased diversity. impact Epiroc the main focus is always Promote the integration of the Sustainable the health of employees and their families Development Goals in operations. and of customers. Necessary safety wear is When employees and the company provided to employees who need to be in need to adopt quickly to changing working production or in the field. We always follow conditions, such as in a pandemic, Epiroc local laws and regulations. Regular updates provides the technical support to do so. and clear communication to all employees Epiroc and its employees have become enable quick adaptation to new situations. better at working remotely and cooperating virtually. 78 Epiroc Annual and Sustainability Report 2020 RISK MANAGEMENT

Key risk and context Risk mitigation Opportunities

Environment and climate Examples are physical changes in climate and The Epiroc management and organization Meet increasing demand for sustainable natural resources, pollution, changes in regu- are continuously monitoring environ- equipment by developing products and lations and related taxes and resource prices. mental and climate risks that can impact services and/or expand offering with low Within product development, failing to develop, the operations and demand. Within inno- emissions. Battery technologies and con- launch and market new products or respond vation, improved environmental perfor- nected equipment can add value and help to technological development and customer mance is always an important component. drive the transition to low-carbon solu- demand for sustainable products are examples The board performs an annual oversight tions. Implementation of our 2030 sustain- of risks. of climate-related risks and opportunities. ability lead the organization towards halving CO2 emissions in scope 1, 2 and 3.

Reputation Epiroc’s reputation and business results could All products are tested and also quality Stakeholder engagement can not only be negatively affected for various reasons, assured. Monitoring of product labeling mitigate reputational risks in certain including: and regular communications training. cases but also presents opportunities to • If customers start to lose confidence in the Epiroc has a clear well-known brand increase the awareness and credibility of safety and quality of the products and services promise. Epiroc’s brand through collaboration and provided. The Group actively engages in stake- innovation. • If the quality of the products and services holder dialogue. Delivering tested and quality assured offered by Epiroc deteriorates, including Code of Conduct training includes the products improves customer satisfaction timing of delivery or quality and availability of yearly signing of a Compliance Statement and promotes repeat business. products, whether due to a mistake by Epiroc for managers. Increased access to new and emerging or a third party. Behavior or actions that are illegal markets. A high social and environmental • Failure by Epiroc or any of its business partners or violate the Code of Conduct can be profile is particularly important because or customers to comply with ethical, social, reported in the whistleblower system Epiroc is present in many regions where product, labor, health and safety, environ- Speak Up. the impacts from climate change will be mental or other standards, or related political heavy and resilience is low. considerations. Implementation of our 2030 sustain- • Epiroc may be subject to complaints and liti- ability goals helps ensuring compliance gation from customers, employees, suppliers with our Code of Conduct. and other third parties, alleging product injury, health, environmental, safety, data protection, antitrust or operational concerns, nuisance, negligence or failure to comply with applicable laws and regulations.

Corruption and fraud Corruption and bribery exist in many countries In-house lawyers support entities with Complying with legal norms and laws where Epiroc operates. Epiroc faces the risk advice on laws and regulations including minimizes costs and increases opportu- of corruption and other illegal acts committed compliance and support with contract nities to strengthen Epiroc’s reputation. by its employees. reviews. Proactive training is also carried It also creates the chance to develop reli- Inadequate internal controls could result in out. Epiroc has established a compliance able partnerships and improve business Epiroc becoming more vulnerable in relation function tasked with identifying related stability. to fraudulent acts committed by employees or risks areas and supporting compliance Implementation of our 2030 sustain- other persons. Deficiencies in internal control awareness in the organization. ability goals helps ensuring compliance could also cause investors and other third parties An annual legal risk survey of all com- with our Code of Conduct. to lose confidence in Epiroc’s reported financial panies in the Group is performed in addi- information. tion to continuous monitoring of legal risk There is a risk that individual employees, exposure. The result of the legal risk sur- either by mistake or intentionally, act in breach vey is compiled, analyzed and reported to of the applicable legal framework and Epiroc’s the Board and the auditors. internal policies and processes regarding trade All managers are required to sign a compliance. Code of Conduct Compliance Statement. Epiroc is active in a large number of jurisdic- Training in the Code of Conduct is avail- tions and its operations are subject to a wide able for all employees. range of competition and antitrust laws, rules and The Compliance Board is responsible regulations. A risk exists that Epiroc’s employees for the implementation of and adherence may engage in discussions, transactions or in any to the Code of Conduct. All managers other way interact with competitors or customers are, in turn, responsible for ensuring that in breach of applicable competition and antitrust all employees are aware of the Code of laws. Conduct.

Safety and health Inadequate adherence to safety and health regu- Assess and manage safety and health Improved safety and health increases lations can lead to accidents causing damage to risks in the operations. productivity and satisfaction of employees people, productivity and the Epiroc brand. All major units are certified in accor- and business partners. Health and safety laws and regulations are dance with the OHSAS 18001 and Implementation of our 2030 sustain- becoming more complex. ISO45001 standards. ability goals lead the organization towards The cost of complying with, and the liabilities To develop a behavior with safety in improved health and safety. and the potential sanctions imposed pursuant to, mind is key and activities to highlight Promote the integration of the Sustain- health and safety laws and regulations could be this, such as the “SafeStart-program”, able Development Goals in operations. significant. “Live Work Elimination” and Epiroc Safety Day, which are organized throughout the Group. Business partners are offered trainings in Epiroc’s policies including health and safety.

Epiroc Annual and Sustainability Report 2020 79 GROUP FINANCIAL INFORMATION

80 Epiroc Annual and Sustainability Report 2020 GROUP FINANCIAL INFORMATION

Financial information

Page Group Parent Company financial information financial information 133 Signatures of the Board of Directors 82 Consolidated income statement 122 Income statement Consolidated statement of Statement of comprehensive income 134 Financial definitions comprehensive income 123 Balance sheet 83 Consolidated balance sheet 124 Statement of changes in equity 135 Auditor’s report 84 Consolidated statement of 125 Statement of cash flows changes in equity Notes on sustainability 85 Consolidated statement Parent Company notes performance of cash flows 126 A1. Significant accounting policies 138 1. Our approach to reporting 126 A2. Employees, personnel expenses 139 2. Stakeholder dialogue and net- Group notes and remunerations works 86 1. Significant accounting policies, to auditors 140 3. Management approach/integrat- accounting estimates and 127 A3. Other operating income ing sustainability judgements and expenses 141 4. Governance policies and guide- 93 2. Changes in accounting policies 127 A4. Financial income and expenses lines 93 3. Acquisitions and divestments 127 A5. Appropriations 141 5. We use resources responsibly 94 4. Segment information 127 A6. Income tax and efficiently 97 5. Employees and personnel 128 A7. Deferred tax assets and 142 6. We invest in safety and health expenses liabilities 142 7. We grow together with passionate 100 6. Remuneration to auditors 128 A8. Shares in Group companies people and courageous leaders 100 7. Other operating income 128 A9. Other financial assets 142 8. We live by the highest ethical and expenses 128 A10. Other receivables standards 101 8. Financial income and expenses 128 A11. Equity 144 Sustainability performance 101 9. Income taxes 129 A12. Post-employment benefits 145 Auditor’s report on sustainability 103 10. Other comprehensive income 130 A13. Other provisions 103 11. Earnings per share 130 A14. Borrowings 146 The Epiroc share 104 12. Intangible assets 130 A15. Other liabilities 105 13. Property, plant and equipment 130 A16. Financial risk management 148 Further information 106 14. Investments in associated 131 A17. Assets pledged and contingent companies and joint ventures liabilities 107 15. Other financial assets 131 A18. Directly owned subsidiaries 107 16. Inventories 131 A19. Related parties 107 17. Trade receivables 132 A20. Events after the reporting 108 18. Other receivables period 108 19. Cash and cash equivalents 108 20. Equity 109 21. Borrowings 110 22. Leases 111 23. Post-employment benefits 113 24. Share-based payments 116 25. Other liabilities 116 26. Provisions 117 27. Assets pledged and contingent liabilities 117 28. Financial risk management 121 29. Related parties 121 30. Events after the reporting period

Epiroc Annual and Sustainability Report 2020 81 GROUP FINANCIAL INFORMATION Group financial information

Consolidated income statement

January - December MSEK Note 2020 2019 Revenues 4 36 122 40 849 Cost of sales -22 418 -25 547 Gross profit 13 704 15 302

Administrative expenses -2 817 -3 261 Marketing expenses -2 225 -2 797 Research and development expenses -1 032 -1 035 Other operating income 7 163 130 Other operating expenses 7 -413 -191 Share of profit in associated companies and joint ventures 14 2 -12 Operating profit 4, 5, 6, 7, 16 7 382 8 136

Financial income 8 144 180 Financial expenses 8 -439 -473 Net financial items - 295 -293

Profit before tax 7 087 7 843

Income tax expense 9 -1 677 -1 959 Profit for the year 5 410 5 884

Profit attributable to: – owners of the parent 5 399 5 874 – non-controlling interests 11 10

Basic earnings per share, SEK 11 4.48 4.89 Diluted earnings per share, SEK 11 4.48 4.89

Consolidated statement of comprehensive income

January - December MSEK Note 2020 2019 Profit for the year 5 410 5 884

Other comprehensive income Items that will not be reclassified to profit or loss Remeasurements of defined benefit pension plans -147 -274 Income tax relating to items that will not be reclassified 32 52 Total items that will not be reclassified to profit or loss -115 -222

Items that may be reclassified subsequently to profit or loss Translation differences on foreign operations -1 812 547 - realized and reclassified to profit and loss -33 -7 Cash flow hedges 0 -22 Income tax relating to items that may be reclassified 0 5 Total items that may be reclassified subsequently to profit or loss -1 845 523

Other comprehensive income for the year, net of tax 10 -1 960 301

Total comprehensive income for the year 3 450 6 185 Total comprehensive income attributable to – owners of the parent 3 447 6 175 – non-controlling interests 3 10

82 Epiroc Annual and Sustainability Report 2020 GROUP FINANCIAL INFORMATION

Consolidated balance sheet

MSEK Note Dec. 31, 2020 Dec. 31, 2019 Assets Non-current assets Intangible assets 12 4 111 4 226 Rental equipment 13 999 1 213 Other property, plant and equipment 13 4 150 4 613 Investments in associated companies and joint ventures 14 188 201 Other financial assets and receivables 15 751 1 007 Deferred tax assets 9 1 374 630 Total non-current assets 11 573 11 890

Current assets Inventories 16 8 930 10 508 Trade receivables 17 6 045 7 287 Other receivables 18 1 414 1 597 Current tax receivables 189 353 Financial assets 15 682 862 Cash and cash equivalents 19 15 053 8 540 Total current assets 32 313 29 147 Total assets 43 886 41 037

Equity and liabilities Equity 20 Share capital 500 500 Other paid-in capital 80 58 Reserves -1 107 730 Retained earnings including profit for the year 24 220 21 473 Equity attributable to owners of the parent 23 693 22 761 Non-controlling interests 46 52 Total equity 23 739 22 813

Liabilities Non-current liabilities Interest-bearing liabilities 21, 22 9 491 7 724 Post-employment benefits 23 806 596 Other liabilities 54 98 Provisions 26 323 325 Deferred tax liabilities 9 606 - Total non-current liabilities 11 280 8 743

Current liabilities Interest-bearing liabilities 21, 22 664 705 Trade payables 3 605 4 050 Current tax liabilities 391 507 Other liabilities 25 3 911 3 930 Provisions 26 296 289 Total current liabilities 8 867 9 481 Total equity and liabilities 43 886 41 037

Epiroc Annual and Sustainability Report 2020 83 GROUP FINANCIAL INFORMATION

Consolidated statement of changes in equity

2020 Equity attributable to owners of the parent

Other Non- Share paid-in Translation Cash flow Retained controlling MSEK capital capital reserve hedge earnings Subtotal interests Total equity Opening balance, January 1 500 58 730 0 21 473 22 761 52 22 813 Profit for the year – – – – 5 399 5 399 11 5 410 Other comprehensive income for the year – – - 1 837 0 - 115 - 1 952 -8 -1 960 Total comprehensive income for the year – – -1 837 0 5 284 3 447 3 3 450 Dividend – – – – -2 892 -2 892 -9 -2 901 Divestment of 2 972 466 series A shares – 22 – – 348 370 – 370 Share-based payment, equity settled – expense during the year – – – – 25 25 – 25 – exercise option – – – – -18 -18 – -18 Closing balance, December 31 500 80 - 1 107 0 24 220 23 693 46 23 739

2019 Equity attributable to owners of the parent

Other Non- Share paid-in Translation Cash flow Retained controlling MSEK capital capital reserve hedge earnings Subtotal interests Total equity Opening balance, January 1 500 3 190 17 18 087 18 797 50 18 847 Profit for the year – – 5 874 5 874 10 5 884 Other comprehensive income for the year – – 540 -17 -222 301 0 301 Total comprehensive income for the year – – 540 -17 5 652 6 175 10 6 185 Dividend – – – – -2 523 -2 523 -8 -2 531 Divestment of 4 705 198 series A shares – 55 – – 419 474 – 474 Acquisitions of 1 500 000 series A shares – – – – -134 -134 – -134 Share-based payment, equity settled – expense during the year – – – – 9 9 – 9 – exercise option – – – – -37 -37 – -37 Closing balance, December 31 500 58 730 0 21 473 22 761 52 22 813

84 Epiroc Annual and Sustainability Report 2020 GROUP FINANCIAL INFORMATION

Consolidated statement of cash flows

January - December MSEK Note 2020 2019 Cash flow from operating activities Operating profit 7 382 8 136 Adjustments for: Depreciation, amortization and impairment 12, 13 1 746 1 978 Capital gain/loss and other non-cash items 252 -252 Net financial items received/paid -94 -410 Taxes paid -1 800 -2 157 Pension funding and payment of pension to employees -54 -61 Cash flow before change in working capital 7 432 7 234

Change in: Inventories 536 739 Operating receivables 486 1 051 Operating liabilities 99 -1 453 Change in working capital 1 121 337 Increase in rental equipment -595 -915 Sale of rental equipment 376 572 Net cash flow from operating activities 8 334 7 228

Cash flow from investing activities Investments in other property, plant and equipment -507 -486 Sale of other property, plant and equipment 84 60 Investments in intangible assets 12 -498 -537 Sale of intangible assets 4 16 Acquisition of subsidiaries and associated companies 3 -63 -1 137 Divestment of subsidiaries 3 -12 153 Proceeds to/from other financial assets, net 384 276 Net cash flow from investing activities -608 -1 655

Cash flow from financing activities Dividend -2 892 -2 523 Dividend paid to non-controlling interest -9 -8 Repurchase of own shares – -134 Divestment of own shares 370 474 Borrowings 4 010 3 035 Repayment of borrowings -2 012 -3 432 Payment of lease liabilities -457 -423 Net cash flow from financing activities -990 -3 011

Net cash flow for the year 6 736 2 562 Cash and cash equivalents, Jan. 1 8 540 5 872 Exchange rate difference in cash and cash equivalents -223 106 Cash and cash equivalents, Dec. 31 19 15 053 8 540

Operating cash flow Net cash from operating activities 8 334 7 228 Net cash from investing activities -608 -1 655 Acquisition and divestment of subsidiaries and associated companies 75 984 Other adjustments 1) -795 131 Operating cash flow 7 006 6 688

1) Mainly currency hedges of loans and divestment of Financial Solutions portfolios.

Epiroc Annual and Sustainability Report 2020 85 GROUP NOTES Group notes

1. Significant accounting policies, accounting estimates and judgements

Significant accounting policies Associated companies and joint ventures The consolidated financial statements comprise Epiroc AB, the An associate is an entity in which the Group has significant influence, Parent Company (“the Company”), and its subsidiaries (together “the but not control, over financial and operating policies. When the Group Group” or Epiroc) and the Group’s interest in associated companies holds 20–50% of the voting power, it is presumed that significant and joint ventures. Epiroc AB is headquartered in Nacka, Sweden. influence exists, unless otherwise demonstrated. A joint venture is The Annual Report for the Group and for Epiroc AB, including finan- an entity over which the Group has joint control, through contractual agreements with one or more parties. Investments in associated cial statements, was approved for issuance on March 4, 2021 . The companies and joint ventures are reported according to the equity balance sheets and income statements are subject to approval by the method. This means that the carrying value of interests in an asso- Annual General Meeting of the shareholders on April 28, 2021. ciate or joint venture corresponds to the Group’s share of reported equity of the associate or joint venture, any goodwill, and any other Basis of preparation remaining fair value adjustments recognized at acquisition date. The consolidated financial statements have been prepared in accor- “Shares of profit in associated companies and joint ventures”, dance with International Financial Reporting Standards (IFRS) as included in the income statement, comprises the Group’s share of endorsed by the EU. The statements are also prepared in accordance the associate’s and joint venture’s income after tax adjusted for any with the Swedish recommendation RFR 1 “Supplementary Account- amortization and depreciation, impairment losses, and other adjust- ing Rules for Groups” and applicable statements issued by the Swed- ments arising from any remaining fair value adjustments recognized ish Financial Reporting Board. These require certain additional dis- at acquisition date. Dividends received from an associated company closure requirements for Swedish consolidated financial statements or joint venture reduce the carrying value of the investment. Unreal- prepared in accordance with IFRS. ized gains and losses arising from transactions with an associate or a joint venture are eliminated to the extent of the Group’s interest, but Basis of consolidation losses only to the extent that there is no evidence of impairment of The consolidated financial statements have been prepared in accor- the asset. When the Group’s share of losses in an associate or a joint dance with the acquisition method. The income statements and bal- venture equals or exceeds its interest in the associate or joint venture, ance sheets of the Group include all entities in which the Company, the Group does not recognize further losses unless the Group has directly or indirectly, has control. Control exists when the Company incurred obligations or made payments on behalf of the associate. has power over the entity, is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to use its Functional currency and foreign currency translation power to affect its returns. Generally, control and hence consolidation The financial statements are presented in Swedish krona (SEK), which is based on ownership. Intra-group balances and internal income and is the reporting currency for Epiroc AB and also the presentation currency for the Group’s financial reporting. Unless otherwise stated, the expense arising from intra-group transactions are fully eliminated in amounts presented are in millions Swedish krona (MSEK). preparing the Group’s financial statements. Gains and losses arising Transactions in foreign currencies are translated at the foreign from intra-group transactions that are recognized in assets, such as exchange rate ruling at the date of the transaction. Non-monetary inventory and fixed assets, are eliminated in full, but losses only to the items carried at historical cost are reported using the exchange rate extent that there is no evidence of impairment. at the date of the transaction and non-monetary items carried at fair value are reported at the rate that existed when the fair values were Business combinations determined. Tangible and intangible assets, inventory and advance Business combinations are accounted for using the acquisition payments are examples of non-monetary items. Receivables and lia- method. Business combinations are seen as if the Group directly bilities and other monetary items denominated in foreign currencies acquires the assets and assumes the liabilities of the entity acquired. are translated using the foreign exchange rate at the balance sheet At the acquisition date, the date on which control is obtained, each date. The exchange gains and losses related to trade receivables and identifiable asset acquired and liability assumed is recognized at its payables and other operating receivables and liabilities are included acquisition date fair value. The consideration transferred, measured in “Other operating income and expenses” and foreign exchange at fair value, includes assets transferred by the Group, liabilities to gains and losses attributable to other financial assets and liabilities the former owners of the acquiree and the equity interests issued by are included in “Financial income and expenses”. Exchange rate dif- the Group in exchange for control of the acquiree. Any subsequent ferences on translation to functional currency are reported in other change in such fair value is recognized in profit or loss, unless the comprehensive income (OCI) in the following cases: contingent consideration is classified as equity. Transaction costs • translation of a financial liability designated as a hedge of the net that the Group incur in connection with a business combination are investment in a foreign operation, expensed as incurred. • translation of intra-group receivables from, or liabilities to, a foreign Goodwill is measured as the excess of the sum of the consider- operation that in substance is part of the net investment in the for- ation transferred, the amount of any non-controlling interests in the eign operation, acquiree, and the fair value of the Group’s previously held equity • cash flow hedges of foreign currency to the extent that the hedge is effective. interest in the acquiree (if any) over the net of acquisition-date fair value amounts of the identifiable assets acquired and liabilities In the financial statements, the balance sheets of foreign subsidiaries assumed. are translated to SEK using exchange rates at the balance sheet date Non-controlling interest is initially measured at the non-controlling and the income statements are translated at the average rates for interest’s proportionate share of the fair value of identifiable net the reporting period. Foreign exchange differences arising on such assets. translation are recognized in other comprehensive income and are Subsequent profit or loss attributable to the non-controlling accumulated in the currency translation reserve in equity. Exchange interest is allocated to the non-controlling interest, even if it puts rates for major currencies that have been used for the Group’s finan- the non-controlling interest in a deficit position. Acquisitions of non cial statements are disclosed in note 28. controlling interests are recognized as a transaction between owners of the parent and non-controlling interests. The difference between Segment reporting consideration paid and the proportionate share of net assets acquired An operating segment is a component of the Group that engages is recognized in equity. For details on the acquisitions made during in business activities from which it may earn revenue and incur the year, see note 3. expenses, whose operating results are regularly reviewed by the

86 Epiroc Annual and Sustainability Report 2020 GROUP NOTES 1. Significant accounting policies, accounting estimates and judgements, cont. entity’s chief operating decision maker to make decisions about cumstances; the performance obligation is satisfied upon completion resources to be allocated to the segment and assess its performance, of installation of the equipment. Payment is generally due between and for which discrete financial information is available. Epiroc’s man- 30–60 days from delivery. In some contracts, short-term advances agement monitors its operations by division which represents the are required before the equipment is delivered. Some contracts con- Group’s operating segments. The operating results of the operating tain right of return, late delivery penalties, volume rebates and buy- segments are reviewed regularly by the Group’s President and CEO, backs, which give rise to variable consideration subject to constraint. the chief operating decision maker, to make decisions about allocation of resources to the segments and to assess their performance. In Installation services the Group’s financial statements the operating segments have been Installation services is sold either separately or as a part of an equip- aggregated to two reporting segments, Equipment & Service and ment sale. The performance obligation is satisfied over time and Tools & Attachments, in accordance with IFRS 8. See note 4 for addi- payment is generally due upon completion and acceptance of the tional information. customer.

Revenue recognition Spare parts and tools Revenue is recognized at an amount that reflects the expected and The performance obligation is satisfied upon delivery of the equip- entitled consideration for transferring goods and/or services to cus- ment. Payment is generally due between 30–60 days from delivery. tomers when control has passed to the customer. See note 4 for fur- Some contracts contain volume rebates, which give rise to variable ther information on revenue by segment and by geographical area. consideration subject to constraint.

Goods sold Service Revenue from goods sold is recognized at one point in time when The providing of service is satisfied over time and payment is gener- control of the goods has been transferred to the customer. This occur ally due 30–60 days after completion. when i.e. the Group has a present right to payment for the goods, the customer has legal title of the goods, the goods have been delivered See note 4 for more information regarding the Group’s performance to the customer and/or the customer has the significant risks and obligations. rewards of the ownership of the goods. When the goods sold is highly customized and an enforceable Rental operations right to payment is present, revenue is recognized over time using the Rental income from rental equipment is recognized on a straight-line proportion of cost incurred to date compared to estimated total cost basis over the rental period. Sale of rental equipment is recognized to measure progress towards transferring the control of the goods to as revenue when the significant risks and rewards of ownership have the customer. been transferred to the buyer. The carrying value of the rental equip- For buy-back commitments where the buy-back price is lower ment sold is recognized as cost of sales. Investments in and sale of than original selling price but there is an economic incentive for the rental equipment are included in cash flow from operating activities. customer to use the buy-back commitment option, the transaction is accounted for as an operating lease. Other operating income and expenses Commissions and royalties are recognized on an accrual basis in Variable consideration accordance with the financial substance of the agreement. Gains and Some contracts with customers provide a right of return, trade dis- losses on disposals of an item of non-current tangible and intangible counts or volume rebates. If revenue cannot be reliably measured, assets are determined by comparing the proceeds from disposal with the revenue is deferred until the uncertainty is highly probable to be the carrying amount. Such gains and losses are recognized within resolved. Such provisions are estimated at contract inception and “Other operating income” and “Other operating expenses”. See note 7 updated thereafter. for additional information.

Rights of return Financial income and expenses When a contract with a customer provides a right to return the goods Interest income and interest expenses are recognized in profit or loss within a specified period, the Group accounts for the right of return using the effective interest rate method. Dividend income is recog- using the expected value method based on historical experience with nized in profit or loss on the date that the Group’s right to receive pay- the customer or similar customers and taking into consideration future ment is established. See note 8 for additional information. expected deliveries. The amount of revenue related to the expected returns is deferred and recognized in the balance sheet within “Other Income taxes liabilities”. A corresponding adjustment is made to the cost of sales Income taxes include both current and deferred taxes. Income taxes and recognized in the balance sheet within “Other receivables”. are reported in profit or loss unless the underlying transaction is reported in other comprehensive income or in equity, in which case Rendering of services the corresponding tax is reported according to the same principle. A Revenue from service is recognized over time by reference to the current tax liability or asset is recognized for the estimated taxes pay- progress towards satisfaction of each performance obligation. The able or refundable for the current year or prior years. progress towards satisfaction of each performance obligation is Deferred tax is recognized using the balance sheet liability measured by the proportion of cost incurred to date compared to method. The calculation of deferred taxes is based on differences estimated total cost of each performance obligation. between the values reported in the balance sheet and their valua- Where the outcome of a service contract cannot be estimated tion for taxation, which are referred to as temporary differences, and reliably, revenue is recognized to the extent of costs incurred that are the carry-forward of unused tax losses and tax credits. Temporary expected to be recoverable. When it is probable that total contract differences attributable to the following assets and liabilities are not costs will exceed total revenue, the expected loss is recognized as provided for: the initial recognition of goodwill, the initial recognition an expense immediately. (other than in business combinations) of assets or liabilities that affect neither accounting nor taxable profit, and differences related to Contract assets and contract liabilities investments in subsidiaries, associated companies and joint ventures If the right to consideration for a specific performance obligation is to the extent that they will probably not reverse in the foreseeable conditional on satisfying another performance obligation, the right is future, and for which the Company is able to control the timing of the classified as a contract asset. When payment has been received in reversal of the temporary differences. advance of satisfying the performance obligation, the liability is clas- A deferred tax asset is recognized only to the extent that it is prob- sified as a contract liability. able that future taxable profits will be available against which the asset can be utilized. In the calculation of deferred taxes, enacted Performance obligation or substantively enacted tax rates are used for the individual tax Information about the Group’s performance obligations are summa- jurisdictions. rized below: Current and deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current Equipment tax liabilities and when they relate to income taxes levied by the same The performance obligation is satisfied upon delivery of the equip- taxation authority and the Group intends to settle its current tax assets ment, except for equipment with complex installation, in these cir- and liabilities on a net basis. For details regarding taxes, see note 9.

Epiroc Annual and Sustainability Report 2020 87 GROUP NOTES 1. Significant accounting policies, accounting estimates and judgements, cont. Earnings per share intended use are included in the cost value until the assets are sub- Basic earnings per share are calculated based on the profit for the stantially ready for their use or sale and are thereafter depreciated. year attributable to owners of the parent and the basic number of The Group capitalizes costs on initial recognition and on replace- shares outstanding adjusted for any subsequent split made prior to ment of significant parts of property, plant and equipment if it is the release of the financial statements. Diluted earnings per share probable that the future economic benefits embodied will flow to are calculated based on the profit for the year attributable to owners the Group and the cost can be measured reliably. All other costs are of the parent and the diluted number of shares outstanding. Dilutive expensed in profit or loss when incurred. effects arise from stock options that are settled in shares, or that at the employees’ choice can be settled in shares or cash in the share- Rental equipment based incentive programs. Stock options have a dilutive effect when The rental fleet comprise drill rigs, mine trucks, loaders, and to a the average share price during the period exceeds the exercise price lesser extent hydraulic attachments, simulators and other mining and of the options. When calculating the dilutive effect, the exercise price construction equipment. Rental equipment is initially recognized at is adjusted by the value of future services related to the options. See cost and is depreciated over the estimated useful life of the equip- note 11 for more details. ment. Rental equipment is depreciated to a residual value estimated at 0–10% of cost. Intangible assets Goodwill Depreciation and amortization Goodwill is recognized at cost, as established at the date of acquisi- Depreciation and amortization is calculated based on cost using the tion of a business (see “Business combinations”), less accumulated straight-line method over the estimated useful life of the asset. Parts impairment losses, if any. Goodwill is allocated to the cash-generat- of property, plant and equipment with a cost that is significant in ing units (CGU) that are expected to benefit from the synergies of the relation to the total cost of the item are depreciated separately when business combination. The operating segments of Epiroc have been the useful life of the parts do not coincide with the useful life of other identified as CGU’s. Impairment testing is made at least annually or parts of the item. whenever the need is indicated. Goodwill is reported as an indefinite useful life intangible asset. The estimated useful lives are as follows: Technology-based intangible assets 3–15 years Research and development Trademarks 5–10 years Technology-based intangible assets Marketing and customer related intangible assets 5–15 years Expenditure on research activities is expensed as incurred. Research Buildings 25–50 years projects acquired as part of business combinations are initially rec- Machinery and equipment 3–10 years ognized at their fair value at the acquisition date. Subsequent to initial Vehicles 4–5 years recognition, these research projects are carried at cost less amorti- Computer hardware and software 3–10 years zation and impairment losses. Expenditure on development activities Rental equipment 3–8 years are expensed as incurred unless the activities meet the criteria for being capitalized i.e.: The useful life and residual values are reassessed annually or more • the product or process being developed is estimated to be tech- often if there are indications of impairment. Land, assets under con- nically and commercially feasible and will generate probable future struction and goodwill are not depreciated or amortized. For changes benfits, and in the Group’s property, plant and equipments, see note 13. • the Group has the intent and ability to complete and sell or use the product or process and if it is to be used internally, the usefulness of Leases – IFRS 16 the intangible asset and The Group acts both as lessor and lessee. The Group assesses at • the Group has the ability to measure reliably the expenditure attrib- contract inception whether a contract is, or contains, a lease. That is, if utable to the intangible asset during its development. the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The capitalized expenditure includes the cost of materials, direct labor, and other costs directly attributable to the project. Capitalized Group as Lessee development expenditure is carried at cost less accumulated amor- The Group as lessee recognizes a right-of-use asset in the balance tization and impairment losses. See note 7 and note 12-for the alloca- sheet as well as a lease liability. On commencement date, the lease tion of amortization in the Income statement. liability is initially measured at the present value of the unpaid lease payments, discounted using the interest rate implicit in the lease, Trademarks or if the rate cannot be readily determined, the Group’s incremental Trademarks acquired by the Group are capitalized based on their fair borrowing rate. Lease payments included in the measurement com- value at the time of acquisition, and are subsequently carried at cost prise fixed payments, variable lease payments that depend on an less accumulated amortization and impairment losses. index or a rate, amounts to be paid under a residual value guarantee and lease payments due to the exercise of any options in the con- Marketing and customer related intangible assets tract, if the Group is reasonably certain to use the option. The lease Acquired marketing and customer related intangibles are capitalized liability is subsequently measured at amortized cost adjusted for any based on their fair value at the time of acquisition and are carried at remeasurement. cost less accumulated amortization and impairment losses. A remeasurement of the lease liability, and a corresponding applicable adjustment to the related right-of-use asset, is performed Other intangible assets when Acquired intangible assets relating to contract based rights, such as • the lease term has changed or there is a change in the assessment licenses or franchise agreements, are capitalized based on their fair of exercise of a purchase option, in which case the lease liability value at the time of acquisition and carried at cost less accumulated is remeasured by discounting the revised lease payments using a amortization and impairment losses. Expenditure on internally gener- revised discount rate. ated goodwill, trademarks and similar items is expensed as incurred. • the lease payments change due to changes in an index or a change in expected payments under a guaranteed residual value, in which Changes in the Group’s intangible assets during the year are cases the lease liability is remeasured by discounting the revised described in note 12. lease payments using the initial discount rate. • a lease contract is modified and the lease modification is not Property, plant and equipment accounted for as a separate lease, in which case the lease liability Items of property, plant and equipment are carried at cost less is remeasured by discounting the revised lease payments using a accumulated depreciation and impairment losses. Cost of an item revised discount rate. of property, plant and equipment comprises purchase price, import duties, and any cost directly attributable to bringing the asset to the The right-of-use asset comprise the initial measurement of the corre- location and condition for use. The cost also includes dismantlement sponding lease liability with the addition of any lease payments made and removal of the asset in the future, if applicable. Borrowing costs at or before the commencement day and any initial direct costs. The for assets that need a substantial period of time to get ready for their leased asset is subsequently measured at cost less accumulated depreciation and impairment losses and adjusted for any remea-

88 Epiroc Annual and Sustainability Report 2020 GROUP NOTES 1. Significant accounting policies, accounting estimates and judgements, cont. surement. The leased asset is depreciated over the lease term on a Equity straight-line basis or over its useful life of the underlying asset if it is Shares issued by the company are classified as equity. Incremental assessed to be reasonably certain that the Group will obtain owner- costs directly attributable to the issue of ordinary shares and share ship at the end of the lease term. The depreciation starts at the com- options are recognized as a deduction from equity, net of any tax mencement date of the lease. The depreciation of the right-of-use effect. asset is recognized within operating profit and interest expense on When shares are repurchased, the amount of the consideration the lease liability within net financial items. The right-of-use asset is paid is recognized as a deduction from equity net of any tax effect. subject for impairment following the principle described below under Repurchased shares are classified as treasury shares and are pre- section “Impairment of non-financial assets”. sented as a deduction from total equity. When treasury shares are If the lease contract is considered to include a low value asset sold or subsequently reissued, the amount received is recognized as or has a lease term that is less than 12 months, such payments are an increase in equity and the resulting surplus or deficit on the trans- recognized as an expense on a straight-line basis over the lease action is transferred to or from other paid-in capital. See note 20. term. The Group has leases of certain office equipment (i.e. personal computers, printing and photocopying machines) that are considered Provisions leases of low value. Variable non-lease components such as service Provisions are recognized: components are accounted for as an expense over the lease term. • when the Group has a legal or constructive obligation (as a result of In the consolidated balance sheet, the Group presents the lease a past event), liability within “non-current interest bearing liability” and within “cur- • it is probable that the Group will have to settle the obligation, and rent interest bearing liability” for the part of the lease liability that is • the amount of the obligation can be estimated reliably. due within the next 12 months. The right-of-use asset is presented The amount recognized as a provision is the best estimate of the within “Other property, plant and equipment” or “Rental equipment”. consideration required to settle the present obligation at the balance sheet date. Group as lessor If the effect of the time value of money is material, the provision is At inception of a lease contract, the Group assesses whether the determined by discounting the expected future cash flows of esti- lease is a finance lease or an operating lease. If the Group, as a lessor, mated expenditures. Provisions for product warranties are recognized substantially retains the ownership rights and obligations of the asset, as cost of sales at the time the products are sold based on the esti- then the lease is classified as an operating lease. On the contrary, the mated cost using historical data for level of repairs and replacements. lease is classified as a finance lease if the ownership rights and obli- A restructuring provision is recognized when the Group has approved gations of the asset are transferred to the lessee. a detailed and formal restructuring plan and the restructuring has In cases where the Group acts as a lessor under an operating either commenced or been announced publicly. lease, the asset is classified as rental equipment and is subject to Present obligations arising under onerous contracts are recog- the Group’s depreciation policies. The lease payments are included nized as provisions. An onerous contract is considered to exist where in profit or loss on a straight-line basis over the term of the lease. the Group has a contract under which the unavoidable costs of meet- Under finance leases where the Group acts as lessor, the transaction ing the obligations under the contract exceed the economic benefits is recorded as a sale and a lease receivable, comprising the future expected to be received from the contract. Before a provision is minimum lease payments and any residual value guaranteed to the established, the Group recognizes an impairment loss on the asset lessor, is recorded. Lease payments are recognized as repayment associated with the contract. For details on provisions, see note 26. of the lease receivable and interest income. See note 22 for more details on leases. Post-employment benefits In cases where the Group acts as an intermediate lessor, it Post-employment benefit plans are classified either as defined con- accounts for its interests in the head-lease and the sub-lease sepa- tribution or defined benefit plans. Under a defined contribution plan, rately. The Group assesses the lease classification of a sub-lease with the Group pays fixed contributions into a separate entity and will have reference to the right-of-use asset arising from the head-lease. no legal or constructive obligation to pay further amounts if the fund does not hold sufficient assets to pay all employee benefits. Contri- Impairment of non-financial assets butions to defined contributions plans are expensed when employ- The carrying values of the Group’s non-financial assets are reviewed ees provide services entitling them to the contribution. at least at each reporting date to determine whether there is any Defined benefit plans are the Group’s obligation to provide agreed indication of impairment. If any such indication exists, the Group esti- benefits to current and former employees. The net obligation of mates the recoverable amount of the asset. An impairment loss is defined benefit plans is calculated by estimating the amount of future recognized if the carrying amount of an asset or its cash-generating benefits that employees have earned in return for their services in unit (CGU) exceeds its recoverable amount (i.e. the greater of fair current and prior periods. value less costs to sell and value in use). In assessing value in use, The amount is discounted to determine its present value and the estimated future cash flows are discounted to their present value the fair values of any plan assets are deducted. Funded plans with using a discount rate that reflects current market assessments of the net assets, i.e. plans with assets exceeding the commitments, are time value of money and the risks specific to the asset or CGU. For reported as non-current assets. the purpose of assessing impairment, assets are grouped in CGUs, The costs for defined benefit plans is calculated using the Pro- which are the smallest identifiable groups of assets that generate jected Unit Credit Method, which distributes the cost over the cash inflows that are largely independent of the cash inflows from employee’s service period. The calculation is performed annually other assets or group of assets. Impairment losses are recognized in by independent actuaries using actuarial assumptions such as profit or loss. employee turnover, mortality and future increase in salaries and An impairment loss related to goodwill is not reversed. In respect medical costs. Changes in actuarial assumptions, experience adjust- of other assets, impairment losses in prior periods are reviewed for ments of obligations and changes in fair value of plan assets result possible reversal of the impairment at each reporting date. in remeasurements and are recognized in other comprehensive income. Each quarter a remeasurement is performed to adjust the Inventories present value of pension liabilities and the fair value of pension assets Inventories are valued at the lower of cost and net realizable value. against other comprehensive income. Net interest on defined benefit Net realizable value is the estimated selling price for inventories less obligations and plan assets is reported as interest income or interest all estimated costs of completion and costs necessary to make the expenses. See note 23 for additional information. sale. Inventories are recognized according to the first-in-first-out principle and includes the cost of acquiring inventories and bringing Share-based compensation them to their existing location and condition. Inventories manufac- The Group has share-based incentive programs, consisting of share tured by the Group and work in progress include an appropriate share options and share appreciation rights, which may be offered to cer- of production overheads based on normal operating capacity. Inven- tain employees based on position and performance. Additionally, the tories are reported net of deductions for obsolescence and internal Board are offered synthetic shares. profits arising in connection with deliveries from the production com- The fair value of share options that can only be settled in shares panies to the customer centers. See note 16 for more details. (equity-settled) is recognized as an employee expense with a corresponding increase in equity. The fair value, measured at grant date using the Black-Scholes formula, is recognized as an expense over

Epiroc Annual and Sustainability Report 2020 89 GROUP NOTES 1. Significant accounting policies, accounting estimates and judgements, cont. the vesting period. The amount recognized as an expense is adjusted instruments in this category are recognized at fair value at initial to reflect the actual number of share options that vest. recognition and changes in fair value are recognized in OCI until The fair value of the share appreciation rights, synthetic shares, derecognition, when the amounts in OCI are reclassified to profit or and options with a choice for employees to settle in shares or cash is loss. The assets are subject to a loss allowance for expected credit recognized in accordance with policies for cash-settled share-based losses. payments. The value is recognized as an employee expense with a Fair value through profit or loss (FVTPL) are all other debt instru- corresponding increase in liabilities. The fair value, measured at grant ments that are not measured at amortized cost or FVOCI. Financial date and remeasured at each reporting date using the Black-Scholes instruments in this category are recognized at fair value at initial rec- formula, is accrued and recognized as an expense over the vesting ognition and changes in fair value are recognized in profit or loss. period. Changes in fair value are, during the vesting period and after the vesting period until settlement, recognized in profit or loss as an Classification and measurement of financial liabilities employee expense. The accumulated expense recognized equals Financial liabilities are classified at amortized cost, with the exception the cash amount paid at settlement. Social security charges are paid of derivatives. Financial liabilities at amortized cost are at initial recog- in cash and are accounted for in consistence with the policies for nition measured at fair value including transaction costs. After initial cash-settled share-based payments, regardless of whether they are recognition, they are measured at amortized cost using the effective related to equity or cash-settled share-based payments. See note 24 interest method. for details. Derivatives are classified at FVTPL, unless they are classified as a hedging instrument and the effective part of the hedge is recognized Financial instruments in OCI. Financial instruments recognized in the balance sheet include assets, Fair value for financial assets and liabilities is described in note 28. such as trade receivables, financial investments and derivatives, and liabilities such as loan liabilities, trade payables and derivatives. Impairment of financial assets Financial assets, except those classified at fair value through profit Financial assets and liabilities and loss (FVTPL), are subject to impairment for expected credit Financial assets and liabilities are recognized when the Group losses. In addition, the impairment model applies to contract assets, becomes a party to the contractual provision of the instrument. Trans- loan commitments and financial guarantees that are not measured at actions of financial assets are accounted for at trade date, which is the FVTPL. The IFRS 9 expected credit loss (ECL) model is forward look- day when the Group contractually commits to acquire or dispose of ing and a loss allowance is recognized at first recognition of an asset the assets. Trade receivables are recognized on issuance of invoices. or receivable when there is an exposure to credit risk. Expected credit Liabilities are recognized when the other party has performed and losses reflect the present value of all cash shortfalls related to default there is a contractual obligation to pay. Derecognition, fully or par- events either over the following 12 months or over the expected life of tially, of a financial asset occurs when the rights in the contract have a financial instrument, depending on type of asset and on credit dete- been realized or matured, or when the Group no longer has control rioration from inception. The ECL reflects an unbiased, probability over it. A financial liability is derecognized, fully or partially, when the weighted outcome that considers multiple scenarios based on rea- obligation specified in the contract is discharged or otherwise expires. sonable and supportable forecasts. A financial asset and a financial liability are offset and the net amount The simplified model is applied on trade receivables, lease receiv- presented in the balance sheet when there is a legal right to offset ables and contract assets. A loss allowance is recognized over the the recognized amounts and there is an intention to either settle on expected lifetime of the receivable or asset. For other items subject a net basis or to realize the asset and settle the liability simultane- to ECL, the impairment model with a three stage approach is applied. ously. Gains and losses from derecognition and modifications are Initially, and at each reporting date, a loss allowance will be recog- recognized in profit or loss. Derecognition from the balance sheet, an nized for the following 12 months, or a shorter time period depending assessment is made of whether and when the transfer of risks and on the time to maturity (stage 1). If it has been a significant increase rewards takes place upon derecognition of an asset from the balance in credit risk since origination a loss allowance will be recognized for sheet for example to an external part. the remaining lifetime of the asset (stage 2). For assets that are considered as credit impaired, allowance for credit losses will continue Measurement of financial instruments to capture the lifetime expected credit losses (stage 3). For credit Financial instruments are classified at initial recognition. The classifi- impaired receivables and assets, the interest revenue is calculated cation decides the measurement of the instruments. based on the carrying amount of the asset, net of the loss allowance, rather than its gross carrying amount as in previous stages. The Group Classification and measurement of financial assets defines default as customers where significant financial difficulties Equity instruments: are classified at fair value through profit or loss have been identified. (FVTPL) unless they are held for non-trading purposes, in which case In the respective model applied, the measurement of ECL is based an irrevocable election can be made on initial recognition to classify on different methods for different credit risk exposures. For trade them at fair value through other comprehensive income (FVOCI) with receivables and contract assets, the method is based on historical no subsequent reclassification to profit or loss. The Group classifies loss rates in combination with forward looking considerations. Lease equity instruments at FVTPL. receivables and cash and cash equivalents are impaired by a rating Derivative instruments: are classified at FVTPL, unless they are method, where ECL is measured by the product of the probability classified as a hedging instrument and the effective part of the hedge of default, loss given default, and exposure at default. Both external is recognized in other comprehensive income (OCI). credit agencies rating and internally developed rating methods are Debt instruments: the classification of financial assets that are debt applied. The measurement of ECL considers potential collaterals and instruments, including hybrid contracts, is based on the Group’s busi- other credit enhancements in the form of guarantees. ness model for managing the assets and the asset’s contractual cash The financial assets are presented in the balance sheet at amor- flow characteristics. The instruments are classified at either: tized cost, i.e. net of gross carrying amount and the loss allowance. • amortized cost, Changes in the loss allowance is recognized in profit or loss as • fair value through other comprehensive income (FVOCI), or impairment losses. A financial asset is written off when there is no rea- • fair value through profit or loss (FVTPL). sonable expectation of recovering the contractual cash flows.

Financial assets at amortized cost are at initial recognition measured Derivatives and Hedge accounting at fair value including transaction costs. After initial recognition, they Derivatives are initially recognized at fair value on the date a deriva- are measured at amortized cost using the effective interest method. tive contract is entered into and also subsequently measured at fair Assets classified at amortized cost is held under the business model value. The method of recognizing the resulting gain or loss depends of collecting the contractual cash flows that are solely payments of on whether the derivative is designated as a hedging instrument, principal and interest on the principal amount outstanding. The assets and if so, the nature of the item hedged. Changes in fair value for are subject to a loss allowance for expected credit losses. derivatives that do not fulfill the criteria for hedge accounting are rec- Fair value through other comprehensive income (FVOCI) are assets ognized as operating or financial transactions based on the purpose held under the business model of both selling financial assets and of the use of the derivative. Interest payments for interest rate swaps collecting the contractual cash flows that are solely payments of are recognized as interest income or expenses, whereas changes in principal and interest on the principal amount outstanding. Financial

90 Epiroc Annual and Sustainability Report 2020 GROUP NOTES 1. Significant accounting policies, accounting estimates and judgements, cont. fair value of future payments are presented as gains or losses from New or amended accounting standards and interpretations in 2020. financial instruments. See note 2 for information.

IFRS 9 Hedge accounting is applied. In order to qualify for hedge Alternative performance measures accounting there must be an economic relationship between the Key figures not defined according to IFRS hedged item and the hedging instrument. Also, the hedging relation- A number of the financial descriptions and measures in this annual ship must be: report provide information about development and status of • formally identified and designated, financial and per share measurements that are not defined in accor- • expected to fulfil the effectiveness requirements, and dance with the IFRS (International Financial Reporting Standards). • documented. The alternative performance measures provides useful supplementary information to investors and management, as they facilitate The Group assesses, evaluates, and documents effectiveness both evaluation of company performance. Since not all companies at hedge inception and on an on-going basis. Hedge effectiveness calculate performance measures in the same manner, these are not is assessed by an analysis of the economic relationship between the always comparable to measures used by other companies. Hence, hedged item and the hedging instrument, and the effect of credit risk these financial measures should not be seen as a substitute for mea- must not dominate the value changes that result from that economic sures defined according to IFRS. See also page 134 Definitions. relationship. Further, the hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the Critical accounting estimates and judgements Group actually hedges and the quantity of the hedging instrument The preparation of financial reports requires management’s judge- that the Group actually uses to hedge that quantity of hedged item. ment and the use of estimates and assumptions that affects the amounts reported in the Group’s financial statements. These esti- Cash flow hedges: Changes in the fair value of the hedging instrument mates and associated assumptions are based on historical experi- are recognized in other comprehensive income to the extent that the ence and various other factors that are believed to be reasonable hedge is effective and the accumulated changes in fair value are rec- under the prevailing circumstances. Actual result may differ from ognized as a separate component in equity. Gains or losses relating those estimates. The estimates and assumptions are reviewed on to the ineffective part of hedges are recognized immediately in profit an on-going basis. Changes in accounting estimates are recognized or loss. The Group does not apply the cost of hedging exception. The in the period in which they are revised and in any future periods amount recognized in equity through other comprehensive income is affected. reversed to profit or loss in the same period in which the hedged item The estimates and the judgements which, in the opinion of man- affects profit or loss. agement, are significant to the underlying amounts included in the The Group uses foreign currency forwards to hedge part of the financial reports and for which there is a significant risk that future future cash flows from forecasted transactions in foreign currencies. events or new information could entail a change in those estimates or Interest rate swaps can be used as cash flow hedges for hedging judgements are as follows. interest on borrowings with variable interest. However, there are no such hedges currently in place. Revenue recognition Key sources of estimation uncertainty Fair value hedges: The gain or loss of the hedging instrument is recog- Revenue for services is recognized over time in profit or loss by ref- nized in profit or loss. A fair value hedge is a hedge of the exposure to erence to the progress towards satisfaction of the performance obli- changes in fair value. For the effective part of the hedge accounting gation at the balance sheet date. The progress towards satisfaction relationship, the gain or loss on the hedged risk adjust the carrying is determined by the proportion of cost incurred to date compared to value of the hedged item and is recognized in profit or loss. As a result estimated total cost of each performance obligation. of applying hedge accounting, accounting of the hedged item and Revenue for goods sold is recognized in profit or loss at one point the hedging instrument are aligned, reducing volatility in the income in time when control of the goods have been transferred to the statement. customer.

Accounting for discontinuation of hedges: Hedge accounting may not Accounting judgement be voluntarily discontinued. Hedge accounting is discontinued: Management’s judgement is used, for instance, when assessing: • when the hedging instrument expires or is sold, terminated, or • the degree of progress towards satisfaction of the performance exercised, obligations and the estimated total costs for such contracts when • when there is no longer an economic relationship between the revenue is recognized over time, to determine the revenue and hedged item and the hedging instrument or the effect of credit risk cost to be recognized in the current period, and whether any losses dominates the value changes that result from the economic rela- need to be recognized, tionship, or • if the control has been transferred to the customer (i. e. the Group • when the hedge accounting no longer meets the risk management has a present right to payment for the goods, the customer has objectives. legal title of the goods, the goods has been delivered to the customer and/or the customer has the significant risks and rewards For cash flow hedges any gain or loss recognized in other compre- of the ownership of the goods), to determine if revenue and cost hensive income and accumulated in equity at that time of hedge dis- should be recognized in the current period, continuation remains in equity and is recognized when the forecast • the transaction price of each performance obligation when a con- transaction is ultimately recognized in profit or loss. When a forecast tract includes more than one performance obligation, to determine transaction is no longer expected to occur, the gain or loss accumu- the revenue and cost to be recognized in the current period, and lated in equity is recognized immediately in profit or loss. • the customer credit risk (i.e. the risk that the customer will not meet For fair value hedges, the hedging gain or loss that adjusts the car- the payment obligation), to determine and justify the revenue rec- rying amount of the hedged item, is amortized to profit or loss over ognized in the current period. the period to maturity using a recalculated effective interest rate for hedged item for which the effective interest method is used. If the Impairment of goodwill, other intangible hedged item is derecognized, the unamortized fair value adjustment assets and other non-current assets is recognized immediately in profit or loss. Key sources of estimation uncertainty Goodwill is not amortized but are subject to annual tests for impair- Contingent liabilities ment. Other intangible assets and other non-current assets are amor- A contingent liability is a possible obligation or a present obligation tized or depreciated based on management’s estimates of the period that arises from past events that is not reported as a liability or provi- that the assets will generate revenue but are also reviewed regularly sion, due either to that it is not probable that an outflow of resources for indications of impairment. The impairment tests are based on a will be required to settle the obligation or that a sufficiently reliable review of the recoverable amount, which is estimated based on man- calculation of the amount cannot be made. agement’s projections of future cash flows using internal business plans and forecasts.

Epiroc Annual and Sustainability Report 2020 91 GROUP NOTES 1. Significant accounting policies, accounting estimates and judgements, cont. Accounting judgement rates. The actuarial assumptions are reviewed on an annual basis and Asset impairment requires management’s judgement, particularly in are changed when it is deemed appropriate. See note 23 for addi- assessing: tional information regarding assumptions used in the calculation of • whether an event has occurred that may affect asset values, post-employment obligations. • whether the carrying value of an asset can be supported by the net present value of future cash flows, which are estimated based upon Legal proceedings and tax claims the continued use of the asset in the business, Accounting judgement • the appropriate assumptions to be applied in preparing cash flow Epiroc recognizes a liability when the Group has an obligation from projections, and a past event involving the transfer of economic benefits and when a • the discounting of these cash flows. reasonable estimate can be made of what the transfer might be. The Group reviews outstanding legal cases regularly in order to assess Changing the assumptions selected by management to determine the need for provisions in the financial statements. These reviews the level of impairment, if any, could affect the financial position and consider the factors of the specific case by internal legal counsel results of operation. See note 12. and through the use of outside legal counsel and advisors when necessary. The financial statements may be affected to the extent Deferred taxes that management’s assessments of the factors considered are not Key sources of estimation uncertainty consistent with the actual outcome. Additionally, the legal entities Deferred tax assets are recognized for temporary differences of the Group are frequently subject to audits by tax authorities in between the carrying amounts for financial reporting purposes of accordance with standard practice in the countries where the Group assets and liabilities and the amounts used for taxation purposes operates. In instances where the tax authorities have a different view and for tax loss carry-forwards. The Group records deferred tax on how to interpret the tax legislation, the Group makes estimates as assets based upon management’s estimates of future taxable profit to the likelihood of the outcome of the dispute, as well as estimates in different tax jurisdictions. The actual results may differ from these of potential claims. The actual results may differ from these estimates. estimates, due to change in the business climate and change in tax legislation. See note 9. Warranty provisions Key sources of estimation uncertainty Inventory Provisions for product warranties should cover future commitments Accounting judgement for the sales volumes already realized. Warranty provision is a com- The Group values inventory at the lower of historical cost, based on plex accounting estimate due to the variety of variables which are the first-in-first-out basis, and net realizable value. The calculation of included in the calculations. The calculation methods are based on net realizable value involves management’s judgement as to the esti- the type of products sold and historical data for level of repairs and mated sales prices, overstock articles, outdated articles, damaged replacements. The underlying estimates for calculating the provi- goods, and selling costs. If the estimated net realizable value is lower sion is reviewed at least quarterly as well as when new products are than historical cost, a valuation allowance is established for inventory being introduced or when other changes occur which may affect the obsolescence. See note 16 for additional information. calculation.

Trade and financial receivables Leasing Key sources of estimation uncertainty Accounting judgement The Group measures the expected credit losses on financial assets Determining the lease term of contracts with renewal classified at amortized cost including trade and financial receivables, and termination options – Group as Lessee lease receivables and contract assets. The expected credit losses are The Group has a few lease contracts that include extension and ter- an assessment that reflects an unbiased, expected outcome based mination options. The Group applies judgement in evaluating whether on reasonable and supportable forecasts. it is reasonably certain whether or not to exercise the option to renew or terminate the lease. That is, the Group considers all relevant factors Accounting judgement that create an economic incentive for it to exercise either the renewal Management’s judgement considers rapidly changing market condi- or termination. For properties with a lease term of ten years or more, tions which may be particularly sensitive in customer financing oper- the non-cancellable period is assumed to equal the term stated in ations. An overlay control is performed to ensure that an adequate the contract as the renewal periods are not reasonably certain to be loss allowance is recognized. More information and comments on exercised. If the term in the contract is less than ten years it must be Covid-19 impact can be found in the section “Credit risk” in note 28 assessed whether any options to extend the lease will be exercised. and in the Administration report. Circumstances that affect the assessment include any investment in the property that the lessee has made. It is continuously assessed Post-employment benefit valuation assumptions if and when the entity is reasonably certain to exercise an option to Key sources of estimation uncertainty extend the contract. In addition, the renewal options for leases of Post-employment obligations are dependent on the assumptions vehicles are not included as part of the lease term because the Group established by management and used by actuaries in calculating typically leases vehicles for not more than the lease term stated in such amounts. The key assumptions include discount rates, inflation, the contract and, hence, is not exercising any renewal options. future salary increases, mortality rates, and health care cost trend

92 Epiroc Annual and Sustainability Report 2020 GROUP NOTES 2. Changes in accounting policies 2. Changes in accounting policies

For the Annual Report 2020 there are no new IFRS standards to be IFRS 16 amendments implemented. The following amendments have been implemented. The amendment of IFRS 16 Leasing is linked to Covid-19, an assessment is made from the view of the lessee whether there has been a Amendments to IFRS 3 Business combinations modification or not of the lease agreement due to discount received IASB has adopted amendments to the definition of Business combi- or financial relief. Epiroc estimates that the change will not affect the nation. Epiroc estimates that the change will not affect the company’s company’s way of accounting. way of accounting for an acquisition. New or amended accounting standards effective after 2020 IFRS 9, IAS 39, IFRS 7 amendments Revised standards IFRS 4 Insurance contracts, amendments in IFRS Changes in the reference interest reform also some amendments in 9, IAS 39, IFRS 7 and interpretations, also amendments in IAS 37, IFRS hedge accounting and cash flow hedges. Epiroc estimates that the 17, and in IAS 1 have been issued but were not effective as of Decem- changes will not affect the company’s way of accounting. ber 31, 2020, and have not been applied by the Group. They are not expected to have a material overall impact on the consolidated finan- Amendments to IAS 1 and IAS 8: Definition of Materiality cial statements of the Group. The amendment intends to harmonize the definitions of materiality between different IFRS standards and clarify the meaning of the concept. Epiroc estimates that the change will not affect the company’s way of accounting.

3. Acquisitions and divestments

Acquisition 2020 Group recognized Fair value of acquired assets and liabilities values In August, the Equipment & Service segment acquired the company ItalParts Italia S.r.l. through the purchase of 100% of the shares and 2019 voting rights. The Group received control over the business upon the Net assets identified 713 date of the acquisition. The acquisition has been accounted for using Intangible assets 234 the acquisition method, no equity instruments have been issued in connection with the acquisition. Goodwill 249 ItalParts Italia S.r.l. is a distributor of service products. The purchase Total consideration 1 196 price is not material for Epiroc and therefore not disclosed. Net cash outflow 1 117 Divestments 2020 The goodwill recognized on acquisitions is primarily related to the No divestments of subsidiaries have been completed. synergies expected to be achieved from integrating the companies Acquisitions 2019 into the Group’s existing structure. As per December 31, the acquisitions have a total cash flow effect of -1 117. According to the prelim- All acquisitions described below were made through the purchase inary purchase price allocation, total consideration amount to 1 196. of 100% of shares and voting rights or through the purchase of the The acquired businesses have contributed to revenues with 1 140 and net assets of the acquired businesses, except for one subsidiary to to operating profit with 87 since their respective dates of acquisition. New Concept Mining where 67 % of the shares and voting rights were acquired. The Group received control over the businesses upon the date of the completion of the acquisition. All acquisitions have been Contribution from businesses acquired in 2019 accounted for using the acquisition method, no equity instruments MSEK 2019 have been issued in connection with the acquisitions. In January, reporting segment Tools & Attachments acquired For- Contribution from date of control dia Group Inc, Canada, including subsidiaries. The company provides Revenues 1 140 exploration drillings tools as well as water treatment systems and Operating profit 87 pumps. Profit for the year -7 In February, reporting segment Equipment & Service acquired the Contribution if the acquisition assets of Noland Drilling Equipment, a U.S. distributor of water well had occurred on Jan. 1 drilling equipment and related parts, services and consumables. Revenues 1 349 In April, reporting segment Tools & Attachments acquired Innova- Operating profit 107 tive Mining Products (Proprietary) Limited (known as New Concept Profit for the year 7 Mining), South Africa, including subsidiaries. In September, the subsidiaries in Peru and Chile were acquired. New Concept Mining provides a range of underground mining roof Divestments 2019 support products, rock monitoring systems and related accessories. In September, the Epiroc Geotechnical Consumables product line The amounts in the following tables detail the recognized amounts was divested to Mimir Invest and in December, the Epiroc handheld aggregated for all acquisitions made during the year, as the relative drilling consumable manufacturing facility was divested to Monark amounts of the individual acquisitions are not considered significant. AS. Other minor divestments were made during the year. Total net cash effect of the divestments were 153. The divestments resulted in a capital loss of 28 including the result of recycling of accumulated historical translation difference of 7. The capital loss was reported under “Other operating expenses”. See note 7.

Epiroc Annual and Sustainability Report 2020 93 GROUP NOTES 4. Segment information 4. Segment information

Equipment Tools & Common group 2020 & Service Attachments functions Eliminations Group Revenues from external customers 26 834 9 022 266 _ 36 122 Inter-segment revenues 93 2 36 -131 0 Total revenues 26 927 9 024 302 -131 36 122

Operating profit/loss 6 639 1 097 -383 29 7 382 – of which share of profit in associated companies and joint ventures 2 – – – 2 Net financial items – – – – -295 Income tax expense – – – – -1 677 Profit for the year 5 410

Non-cash expenses/income Depreciation/amortization 1 206 400 192 -56 1 742 Impairment 3 1 – – 4 Other non-cash expenses/income 67 25 -89 – 3 Segment assets 17 698 7 507 1 910 -233 26 882 – of which goodwill 953 1 096 – – 2 049 Investments in associated companies and joint ventures 186 2 – – 188 Unallocated assets – – – – 16 816 Total assets 43 886

Segment liabilities 7 041 2 438 639 -98 10 020 Unallocated liabilities – – – – 10 127 Total liabilities 20 147

Capital expenditures Property, plant and equipment 1 048 317 188 -55 1 498 – of which assets leased 281 115 0 – 396 Intangible assets 454 41 3 – 498 Total capital expenditures 1 502 358 191 -55 1 996 Goodwill acquired 38 -1 – – 37

94 Epiroc Annual and Sustainability Report 2020 GROUP NOTES 4. Segment information, cont.

Equipment Tools & Common group 2019 & Service Attachments functions Eliminations Group Revenues from external customers 29 782 10 797 270 – 40 849 Inter-segment revenues 109 2 19 -130 – Total revenues 29 891 10 799 289 -130 40 849

Operating profit/loss 7 474 1 252 -611 21 8 136 – of which share of profit in associated companies and joint ventures -12 – – – -12 Net financial items – – – – -293 Income tax expense – – – – -1 959 Profit for the year 5 884

Non-cash expenses/income Depreciation/amortization 1 280 442 223 -62 1 883 Impairment 1 94 – – 95 Other non-cash expenses/income – -10 -40 – -50 Segment assets 19 991 8 746 3 122 -672 31 187 – of which goodwill 978 1 207 – – 2 185 Investments in associated companies and joint ventures 182 – 19 – 201 Unallocated assets – – – – 9 649 Total assets 41 037

Segment liabilities 7 362 2 399 1 363 -493 10 631 Unallocated liabilities 7 593 Total liabilities 18 224

Capital expenditures Property, plant and equipment 1 255 332 215 -63 1 739 – of which assets leased 184 139 0 – 323 Intangible assets 513 16 8 – 537 Total capital expenditures 1 768 348 223 -63 2 276 Goodwill acquired 10 239 – – 249

The Group is organized in five separate and focused, but still inte- equipment (including right-of-use assets), intangible assets, lease grated operating segments, aggregated into two reporting segments; receivables, other non-current receivables, inventories, and current Equipment & Service and Tools & Attachments. The reporting seg- receivables. Segment liabilities include the sum of non-interest- ments offer different products and services. They are also, together bearing liabilities such as operating liabilities, other provisions, and with the divisions, the basis for management and internal reporting other non-current liabilities. Lease liabilities (part of interest-bearing and are regularly reviewed by the Group’s President and CEO, the liabilities) are also included. Capital expenditure includes property, chief operating decision maker. plant and equipment, and intangible assets, but excludes the effect of goodwill, intangible assets and property, plant and equipment Common group functions are functions which serve the whole Group through acquisitions. and is not considered a segment. Common group functions include Epiroc Financial Solutions. Revenues from operating leases owned Geographical information by Epiroc Financial Solutions are reported under common group The revenues presented are based on the location of the customers functions. while non-current assets are based on the geographical location of The accounting policies for the segments are the same as those the assets. These assets include non-current assets other than finan- described in note 1. Epiroc’s inter-segment pricing is determined on cial instruments, investments in associated companies and joint ven- a commercial basis. Segment assets comprise property, plant and tures, deferred tax assets, and post-employment benefit assets.

Epiroc Annual and Sustainability Report 2020 95 GROUP NOTES 4. Segment information, cont. By geographic area/country

Revenues Non-current assets

2020 2019 2020 2019 North America U.S.A. 3 299 4 123 1 383 1 705 Canada 2 962 3 213 457 542 Mexico 1 470 1 605 44 66 7 731 8 941 1 884 2 313 South America Chile 2 013 2 564 84 126 Peru 983 1 483 53 83 Brazil 949 1 044 22 43 Other countries 691 1 289 31 42 4 636 6 380 190 294 Europe Russia 2 559 2 958 21 34 Sweden 1 098 1 179 3 881 3 630 Norway 520 576 1 6 Germany 492 607 291 328 Finland 456 519 67 73 Other countries 3 553 3 592 496 528 8 678 9 431 4 757 4 599 Africa/Middle East South Africa 2 125 2 482 419 544 Congo (DRC) 540 521 40 26 Other countries 2 355 2 429 83 102 5 020 5 432 542 672 Asia/Australia Australia 4 568 4 465 480 505 China 1 881 1 791 680 834 India 1 174 1 388 334 402 Kazakhstan 634 770 21 11 Other countries 1 800 2 251 376 422 10 057 10 665 1 891 2 174 Total 36 122 40 849 9 264 10 052

Revenues

2020 2019 Equipment & Service 26 927 29 891 whereof Equipment 11 382 13 861 whereof Service 1) 15 545 16 030 Tools & Attachments 9 024 10 799 Common Group functions/eliminations 171 159 Total 36 122 40 849

1) “Service” includes spare parts and service.

Performance obligations The remaining performance obligations expected to be recognized The transaction price allocated to the remaining performance obli- within one year or more than one year, relates to combined service gations (unsatisfied or partially satisfied as at December 31) are as contracts, where the entire contract is assessed to be one perfor- follows: mance obligation.

2020 2019 The amount of remaining performance obligations not yet satisfied or partially satisfied has not been disclosed for; Within one year 460 283 • Contracts with a contract period of less than one year. More than one year 505 289 • Contracts meeting the requirement for the right to invoice expedient.

96 Epiroc Annual and Sustainability Report 2020 GROUP NOTES 5. Employees and personnel expenses 5. Employees and personnel expenses

Average number of employees

2020 2019 Women Men Total Women Men Total Parent Company Sweden 22 19 41 24 20 44 Subsidiaries North America 302 1 740 2 042 335 1 918 2 253 South America 172 1 205 1 377 178 1 298 1 476 Europe 913 3 720 4 633 917 3 852 4 769 – of which Sweden 621 2 443 3 064 613 2 500 3 113 Africa/Middle East 255 2 023 2 278 257 1 813 2 070 Asia/Australia 514 3 127 3 641 552 3 234 3 786 Total subsidiaries 2 156 11 815 13 971 2 239 12 115 14 354 Total 2 178 11 834 14 012 2 263 12 135 14 398

Number and proportion of women in the Board of Directors and Group Management

2020 2019 Proportion of Proportion of Group Women Men women % Women Men women % Board of Directors excl. union representatives 1) 4 5 44 3 5 38 Group Management 1 10 9 1 5 17

1) The President and CEO is also a member of the Board of Directors.

Remuneration and other benefits for the Group

Amounts in MSEK 2020 2019 4) Salaries and other remuneration 1), 2) 6 365 6 916 whereof Parent Company 2) 129 100 Contractual pension benefits 3) 438 400 whereof Parent Company 17 14 Other social costs 1 078 1 154 whereof Parent Company 48 33 Total 7 881 8 470

1) Salaries and other remuneration including variable compensation to Board of Directors and Group Management, excluding pensions, 79 (83). 2) Recognized costs for share-based payments 69 (159) whereof 23 (19) to Group Management, not recognized in presented amounts 2019. 3 Pensions to Group Management 11 (9). 4) Recognized costs for share-based payments not included in 2019.

Remuneration and other benefits to the Board of Directors

Value of Number of Total fees incl. value Adj. due to vesting Total expense 2020 synthetic share shares at Other of synthetic shares at and change in recognized KSEK Fee at grant date grant date fees 2) grant date 2020 3) stock price 4) 2020 Chairman: Ronnie Leten 2 050 – – 370 2 420 – 2 420 Other members of the Board: Anders Ullberg 640 – – 245 885 – 885 Astrid Skarheim Onsum 320 320 3 272 – 640 375 1 015 Jeane Hull 640 – – – 640 128 768 Johan Forssell 320 320 3 272 90 730 342 1 072 Lennart Evrell 320 320 3 272 126 766 247 1 013 Ulla Litzén 640 – – 260 900 – 900 Sigurd Mareels 203 203 2 035 – 406 102 508 Union representatives 1) 78 – – – 78 – 78 Total 5 211 1 163 11 851 1 091 7 465 1 193 8 658

1) Union representatives receive compensation to prepare for their participation in board meetings paid out in 2020. 2) Refers to fees in board committees. 3) Provision for synthetic shares (excl. social costs) at December 31, 2020, MSEK 4.2 (1.9). 4) Refers to synthetic shares received in 2018-2020.

Epiroc Annual and Sustainability Report 2020 97 GROUP NOTES 5. Employees and personnel expenses, cont.

Value of Number of Total fees incl. value Adj. due to vesting Total expense 2019 synthetic share shares at Other of synthetic shares at and change in recognized KSEK Fee at grant date grant date fees 2) grant date 2019 3) stock price 4) 2019 Chairman: Ronnie Leten 2 015 – – 349 2 364 – 2 364 Other members of the Board: Anders Ullberg 635 – – 233 868 – 868 Astrid Skarheim Onsum 317 318 3 263 – 635 133 768 Jeane Hull 524 111 1 076 – 635 89 724 Johan Forssell 317 318 3 263 85 720 105 825 Lennart Evrell 428 207 2 187 85 720 43 763 Ulla Litzén 635 – – 248 883 – 883 Union representatives 1) 76 – – – 76 – 76 Total 4 947 954 9 789 1 000 6 901 370 7 271

1) Union representatives receive compensation to prepare for their participation in board meetings paid out in 2019. 2) Refers to fees in board committees. 3) Provision for synthetic shares (excl. social costs) at December 31, 2019, MSEK 1.9. 4) Refers to synthetic shares received in 2018 and 2019.

Remuneration and other benefits to Group Management

Total, excl. recognized Recognized costs Total expense 2020 Base Variable Other costs for share- for share-based recognized KSEK salary 2) compensation 3) benefits 4) Pension based payments payments 7) 2020 President and CEO Helena Hedblom 1) 8 083 1 458 95 2 544 12 180 7 222 19 402 Per Lindberg 1) 5) 1 879 – 23 658 2 560 -1 059 1 501 Other members of Group Management (10 positions) 6) 27 713 5 545 2 995 7 374 43 627 16 900 60 527 Total 37 675 7 003 3 113 10 576 58 367 23 063 81 430

1) Per Lindberg was President and CEO until February 29, 2020. Helena Hedblom is President and CEO from March 1, 2020. 2) During the months May-July, Group Management had a voluntary salary reduction of 10% of the base salary. 3) Variable compensation refers to amount earned in 2020 and to be paid in 2021. 4) Refers to vacation pay, company car, medical insurance, housing allowance and other benefits. In 2019 the amount included costs related to the agreement with the departing President and CEO Per Lindberg. 5) An agreement was entered in 2019 with the departing President and CEO Lindberg that he from March 1, 2020 and during 18 months will be available to the extent requested by the Company. He will be entitled to remuneration during the period reduced by compensation from other employments and assignments. During 2020, Lindberg has received remuneration of MSEK 12,7 under this agreement. This remuneration is not disclosed in the table above, since the total cost was recognized in 2019. 6) Until February 29, other members of Group Management consisted of 5 members. As from March 1, other members of Group Management consisted of 10 members. Helena Hedblom is President and CEO from March 1, 2020. For the period January 1 - February 29, 2020, she was a member of Group Management and her remuneration during said period is included in the sum for other members of Group Management. 7) Refers to the stock options received in 2016–2020 and includes recognized costs due to change in stock price and vesting period.

Total, excl. recognized Recognized costs Total expense 2019 Base Variable Other costs for share for share based recognized KSEK salary compensation 1) benefits 2) Pension based payments payments 3) 2019 President and CEO Per Lindberg 11 275 3 067 23 950 3 946 42 238 4 175 46 413 Other members of Group Management (5 positions) 14 463 3 298 1 224 5 152 24 137 14 753 38 389 Total 25 738 6 365 25 174 9 098 66 375 18 928 85 303

1) Variable compensation refers to amount earned in 2019 and to be paid in 2020. 2) Refers to vacation pay, company car, medical insurance and other benefits. Other benefits also includes costs related to the agreement with the departing President and CEO. An agreement was entered into with Per Lindberg that he will leave as CEO February 29, 2020. From March 1, 2020, and during 18 months Lindberg will be available to the extent requested by the Company and he will be entitled to remuneration during the period. The total cost is MSEK 28 and includes social security fees, which are not included in the table above. The remuneration will be reduced by compensation that Lindberg may earn from other employment or assignments. 3) Refers to the stock options received in 2015–2019 and includes recognized costs due to change in stock price and vesting period.

Remuneration and other fees for members of the Board of Directors, the President and CEO, and other members of Group Management

Remuneration to the Board of Directors 2020 • An amount of SEK 125 000 was granted to the chair of the remunera- The remuneration to the Board of Directors are approved at the Annual tion committee and SEK 90 000 to each of the other members of this General Meeting of the shareholders. committee. • An amount of SEK 70 000 to each non-executive director who, in addi- Remuneration and fees are based on the work performed by the board. tion, participates in committee work decided upon by the board. The Annual General Meeting held on May 12, 2020 decided that fees to the board members elected by the general meeting, for the period from The board members may choose to receive their whole remuneration in the first day of trading of Epiroc’ s shares on Nasdaq Stockholm until the cash or 50% of the remuneration in cash and 50% of their remuneration in next Annual General Meeting should be as per below the form of synthetic shares. The synthetic shares received will be based on an average of the closing price of A-shares during ten trading days • The chair of the board was granted an amount of SEK 2 050 000. following the publishing of the first quarter results 2020. The payment • Each of the other board members not employed by the Group were of each synthetic share is made in 2025 and corresponds to the average granted SEK 640 000. price during the ten trading days after the publishing of the first quarterly • An amount of SEK 260 000 was granted to the chair of the audit result in 2025. The synthetic shares also carry the right to a recalculation committee and SEK 175 000 to each of the other members of this in order to take into account the value of any dividend paid on Epiroc’s committee. shares during the period the synthetic shares have been held.

98 Epiroc Annual and Sustainability Report 2020 GROUP NOTES 5. Employees and personnel expenses, cont. Three board members accepted the right to receive synthetic shares. performance in a manner that enhances such a development. In partic- The number and costs at grant date and at the end of the financial year ular, this applies to the group of key personnel that consists of the senior are disclosed by board member in the table “Remuneration and other executives. It is also the assessment of the Board that a share related benefits to the Board”. employee stock option program increases the attractiveness of Epiroc on the global market and enhances the possibility to recruit and keep key Remuneration to the Group Management personnel in the Group. The principles for the remuneration to the members of Group Man- agement is adopted by the General Meeting of the shareholders in the Guidelines for senior executive remuneration, as Guidelines for Senior Executive Remuneration. The present guidelines adopted by the Annual General Meeting 2020 were adopted by the Annual General Meeting 2020. These approved The CEO and the other members in the Group Management fall within the guidelines are outlined below. They will be in force until the Annual Gen- provisions of these guidelines and are hereinafter referred to as “senior eral Meeting 2024 unless the Board before that finds a need for mate- executives”. The guidelines are forward-looking, i.e. they are applicable to rial amendments and proposes to the General Meeting to adopt such remuneration agreed, and amendments to remuneration already agreed, amendments. after adoption of the guidelines by the Annual General Meeting 2020. Group Management consisted until the end of February of the former These guidelines do not apply to remuneration decided or approved by the CEO and President and five other members. From March 1, 2020 Group general meeting. Management consists of the present CEO and President and ten other members. The compensation to Group Management consists of base The guidelines’ promotion of the company’s business salary, variable compensation, possible long-term incentive pension ben- strategy, long-term interests and sustainability efits and other benefits. For more information regarding the Company’s business strategy, please see the most recent Annual Report on Epiroc Group’s webpage. A prerequisite for the successful implementation of the Company’s business President and CEO strategy and safeguarding of its long-term interests, including its sus- The variable compensation can give a maximum of 70% of the base salary. tainability, is that the Company is able to recruit and retain qualified per- The variable compensation is not included in the basis for pension benefits. sonnel. To this end, it is necessary that the Company offers competitive The President and CEO is a member of the Epiroc group pension policy remuneration. for executives in Sweden, which is a defined contribution plan. The contri- Long-term share-related incentive programs have been implemented bution is age related and was 35% of the base salary for the former Presi- in the Company. Such programs have been resolved, and any future dent and CEO and 30% of the base salary for the present. The retirement such program will be resolved, by the general meeting and are therefore age is 65. excluded from these guidelines. For more information on the existing pro- The President and CEO is entitled to a severance pay of 12 months if the grams, please see the Annual Report or the Group’s webpage. Company terminates the employment and a further six months if the CEO has not been engaged in a new employment contract. Types of remuneration, etc. The President and CEO is eligible to a performance related employee The remuneration may consist of a base salary, annual variable com- stock option plan during 2020. Further information about the plan is found pensation, pension contributions and additional benefits and shall be on in note 24. market terms. Additionally, the general meeting may – irrespective of these guidelines – resolve on, among other things, share-related or share Other members of Group Management price-related remuneration. The variable compensation can give a maximum of 40-50% of the base salary depending on position. Until February 29, the Senior Executive Vice Base salary President Mining and Infrastructure, who is now President and CEO, had a The base salary shall reflect the position, competence and individual maximum of 60%. performance. Members of Group Management locally employed in Sweden Variable cash remuneration have a defined contribution pension plan, with contribution ranging The satisfaction of criteria for awarding variable cash remuneration shall from 30% to 35% of the base salary depending on age. The variable be measured over a period of one year. The variable cash remuneration compensation is not included in the basis for pension benefits. The compensation is limited to a maximum of 70% of the base salary. The retirement age is 65. Two members are on expatriate terms and con- variable cash remuneration shall be linked to criteria that can be financial ditions and they are on defined contribution pension plans with con- or non-financial. The financial goals may be in relation to, for example, tributions related to their home country pension plans. value creation, and development of revenues, operating profit or working Other benefits mainly consist of company car and private health capital. The goals may be individualized, quantitative or qualitative objec- insurance. Two members are on expatriate terms and conditions and tives. The objective with the variable cash remuneration is to promote the they receive benefits according to the Epiroc Group Expatriate Policy. fulfillment of annual short term goals in line with the company’s business Other members of Group Management are entitled to severance pay strategy and long-term interests, including its sustainability. if the Company terminates their employment. The amount of severance Further variable cash remuneration may be awarded in extraordinary pay is dependent on the length of employment with the Company and circumstances, provided that such extraordinary arrangements are lim- the age of the executive, but never more than 24 months’ salary. ited in time and only made on an individual basis, either for the purpose Group Management are eligible to a performance related employee of recruiting or retaining executives, or as remuneration for extraordinary stock option plan during 2020. Further information about the plan is performance beyond the individual’s ordinary tasks. Any resolution on found in note 24. such remuneration shall be made by the Board of Directors based on a proposal from the remuneration committee. To which extent the criteria for awarding variable cash remuneration has been satisfied shall be eval- Stock Options, holdings for Group Management uated/determined when the measurement period has ended. The remu- The stock options holdings as at December 31, 2020, are detailed below. neration committee is responsible for the evaluation so far as it concerns See also note 24 for additional information. variable remuneration to the CEO. For variable cash remuneration to other executives, the CEO is responsible for the evaluation. Stock Options holdings (including matching options) at Dec. 31, 2020 Pension benefits Other members The pension benefits shall be defined contribution to a maximum of 35% of Group of the base salary. Variable cash remuneration shall not qualify for pen- Grant Year 1) President and CEO Management sion benefits if not stipulated by mandatory law or by collective agreement covering the executive. 2016 – 200 860 2017 94 845 150 465 Other benefits 2018 74 849 395 716 Other benefits may include, for example, life insurance, private medical insurance and company cars. Premiums and other costs relating to such 2019 32 079 181 075 benefits may amount to not more than 15 % of the base salary. 2020 2) 57 849 131 173 Total 259 622 1 059 289 Conditions for expatriates etc. For a senior executive working on an international assignment outside 1) Grants prior to 2018 relates to Atlas Copco plans transferred to Epiroc. of own home country, certain other benefits apply in compliance with 2) Estimated grants for the 2020 stock option program including matching options. the Company’s Conditions for Expatriate Employees. For executives employed in other countries than Sweden the pension and other benefits Performance based employee stock option plan will be according to local market practice. It is important that key personnel in Epiroc have a long-term interest in a good value development of the shares of the Company and align their

Epiroc Annual and Sustainability Report 2020 99 GROUP NOTES 5. Employees and personnel expenses, cont. Termination of employment The decision-making process to determine, In case of termination of employment of a senior executive by the Com- review and implement the guidelines pany, the compensation can amount to a maximum of 24 months base The remuneration committee’s tasks include preparing the Board of Direc- salary depending on age, length of employment and possible income tors’ decision to propose guidelines for senior executive remuneration. from other economic activity or employment. When the executive termi- The Board of Directors shall prepare a proposal for new guidelines at least nates the employment, the period of notice is six months. The executive every fourth year and submit it to the general meeting. The guidelines will in the latter case not be entitled to severance pay unless bound by a shall be valid until new guidelines are adopted by the general meeting. non-compete obligation. The remuneration committee shall also monitor and evaluate programs for variable remuneration for the executive management, the application Salary and employment conditions for employees of the guidelines for senior executive remuneration as well as the current In the preparation of the Board of Directors’ proposal for these remuner- remuneration structures and compensation levels in the Company. ation guidelines, salary and employment conditions for other employees of the company have been taken into account. This is done by including Deviations from these guidelines information on the employees’ total remuneration, the components of the The Board of Directors may resolve to deviate from these guidelines, in remuneration and increase and growth rate over time, in the remuneration whole or in part, if in a specific case there is special cause for the deviation committee’s and the Board of Directors’ basis of decision when evaluating and the Board deems a deviation is reasonable to serve the company’s whether the guidelines and the limitations set out herein are reasonable. long-term interests or to ensure the company’s financial viability. As set out above, the remuneration committee’s tasks include preparing the Board of Directors’ resolutions in remuneration-related matters. This includes any resolutions to deviate from the guidelines.

6. Remuneration to auditors

Audit fees and other services Audit fees refers to audit of the financial statements and the accounting records. For the Parent Company this also includes audit of the 2020 2019 administration of the business by the Board of Directors, and the Deloitte President and CEO. Audit fees and other services 28 30 Audit activities other than the audit assignment refer for example Other services, tax 2 4 to comfort letters. Tax services include both tax consultancy services Other services, other 1 0 and tax compliance services. Other services essentially comprise other consultancy services, such as due-diligence services in con- Other audit firms nection with acquisitions. Audit fees 3 2 At the Annual General Meeting of Epiroc 2020, Deloitte was Other services, tax 1 – elected as auditor for the Epiroc Group until the Annual General Meeting 2021. Other services, other 4 – Total 39 36

7. Other operating income and expenses

Other operating income Additional information on costs by nature Cost of sales includes expenses for inventories, see note 16, warranty 2020 2019 costs, environmental fees, and transportation costs. Commissions received 1 1 Salaries, remunerations and employer contributions amounted Capital gain on sale of property, to 7 881 (8 470) whereof expenses for post-employment benefits plant and equipment 47 50 amounted to 438 (400). See note 5 for further details. Foreign exchange gains 30 24 Included in the operating profit are exchange rate gains and losses Other operating income 85 55 on translation of payables and receivables of operating nature. Amor- tization, depreciation and impairment for the year amounted to 1 746 Total 163 130 (1 978). Costs for research and development, including amortization, depreciation and impairment, amounted to 1 032 (1 035). Amortization Other operating expenses related to development expenditure for 2020 amounted to 296(310). 2020 2019 See note 12 and 13 for further details. Epiroc has not received any material government grants related to Covid-19 and Epiroc has not Capital loss on sale of property, utilized governmental support for short-time work in Sweden. plant and equipment -36 -20 Capital loss on divestment of business 0 -28 Foreign exchange losses -279 – Other operating expenses 1) -98 -143 Total -413 -191

1) Other operating expenses of 98 (143) includes costs for the split from Atlas Copco amounting to 18 (62).

100 Epiroc Annual and Sustainability Report 2020 GROUP NOTES 8. Financial income and expenses 8. Financial income and expenses

Financial income and expenses 2020 2019 Foreign exchange loss, net includes foreign exchange gains of 758 (249) and foreign exchange losses of 940 (361). The gains and losses Assets measured at amortized cost refers to revaluation of derivatives, interest-bearing liabilities and Interest income cash in foreign currency. Total impairment was positive in 2020 as – cash and cash equivalents 47 39 actual losses on financial lease receivables were less than the rever- – financial lease receivables 97 140 sals of existing provision balance. Interest income at effective interest method 144 179

Assets measured at fair value in income statement Capital gain – other assets 0 1 Change in fair value – other assets – – Financial income 144 180

Liabilities measured at amortized cost Interest expenses – Interest-bearing liabilities -109 -105 Total interest expenses at effective interest method -109 -105

Liabilities measured at fair value in income statement - derivatives -84 -194 - lease liabilities -39 -38 - pension provisions, net -12 -9 - other -17 -18 Change in fair value - other liabilities and borrowings 2 -3 Foreign exchange losses, net -182 -112 Impairment loss 2 6 Financial expenses -439 -473

Financial expenses, net -295 -293

9. Income taxes

Income tax expense The income tax expense was mainly impacted by non-deductible expenses and non-taxable income. Included in non-taxable income 2020 2019 is income subject to reduced taxation under local tax law, mainly in Current taxes -1 848 -1 992 China and the United States. Withholding taxes concerns taxes on Deferred taxes 171 33 profit repatriation. Adjustments from prior years, current and deferred Total -1 677 -1 959 taxes, relate to adjustments of tax provisions and tax assessments for previous years. The net effect from tax credits and tax loss carry- forwards relates to expired tax credits and tax loss carry-forwards, as The income tax expense recognized was -1 677 (-1 959), which well as utilized tax credits and tax loss carry-forwards for which no corresponds to an effective tax rate of 23.7% (25.0). The major differ- deferred tax assets previously were recognized. Change in tax rate ences between the effective tax rate and the expected tax rate are relates mainly to reduced tax rates in Sweden. explained below. The expected tax rate is calculated as a weighted average, based on profit before tax multiplied by the statutory tax rate Changes in the net deferred tax asset balance from the beginning of in each country. the year to the end of the year are explained below: Bridge of the effective tax rate Change in net deferred tax asset balance 2020 2019 2020 2019 Profit before tax 7 087 7 843 Opening balance, Jan. 1 630 543 Expected income tax expense Recognized in the income statement 171 33 (weighted average) -1 661 -1 803 Tax on amounts recorded in equity 32 52 Expected tax in % 23.4 23.0 Acquisitions 0 -56 Tax effect of: Reclassifications – 63 Non-deductible expenses -119 -176 Translation difference -65 -5 Non-taxable income 156 146 Closing balance, Dec. 31 768 630 Withholding taxes -67 -76 Adjustments related to prior years, net: – current taxes -44 -25 – deferred taxes 57 -4 Tax loss carry-forwards and tax credits, net 0 -16 Change in tax rates, deferred tax 2 2 Other items -1 -7 Recognized income tax expense -1 677 -1 959 Effective tax in % 23.7 25.0

Epiroc Annual and Sustainability Report 2020 101 GROUP NOTES 9. Taxes, cont. Changes in deferred taxes recognized in the income statement are attributable to the change in temporary differences on the following items:

Deferred taxes recognized in the income statement

2020 2019 Intangible assets -43 20 Property, plant and equipment 20 -251 Other financial assets -4 0 Inventories 35 14 Current receivables 49 7 Operating liabilities 12 16 Provisions 22 0 Post-employment benefits 23 7 Borrowings 44 247 Other items 8 -22 Changes due to temporary differences 166 38 Loss/credit carry-forwards 5 -5 Charges to profit for the year 171 33

The deferred tax assets and liabilities recognized in the balance sheet are attributable to temporary differences on the following items:

Deferred tax assets and liabilities

2020 2019 Net Net Assets Liabilities balance Assets Liabilities balance Intangible assets 41 467 -425 46 445 -399 Property, plant and equipment 119 549 -430 141 763 -622 Other financial assets 15 14 1 15 11 4 Inventories 787 20 767 779 20 759 Current receivables 86 10 76 74 21 53 Operating liabilities 294 2 292 321 3 318 Provisions 105 0 105 79 1 78 Post–employment benefits 171 – 171 119 0 119 Borrowings 357 0 357 477 – 477 Tax loss/credit carry-forwards 18 – 18 14 – 14 Other items 1 ) 0 163 -164 5 176 -171 Deferred tax assets/liabilities 1 993 1 225 769 2 071 1 440 630 Netting of assets/liabilities -619 -619 – -1 440 -1 440 – Net deferred tax balances 1 374 606 769 630 – 630

1) Other items primarily relate to provision for taxes on profit repatriation.

Epiroc has tax loss carry-forwards of 66 (53), for which deferred tax Expiration of unused tax loss carry-forwards assets of 18 (14) were recognized. Epiroc has no tax loss carry-for- 2020 2019 wards for which deferred tax assets have not been recognized. Expires after 1-2 years – 18 Expires after 3-4 years – 25 Expires after 5-6 years – 53 No expiry date – – Total – 96

102 Epiroc Annual and Sustainability Report 2020 GROUP NOTES 10. Other comprehensive income 10. Other comprehensive income

Other comprehensive income for the year

2020 2019 Before tax Tax After tax Before tax Tax After tax Attributable to owners of the parent Items that will not be reclassified to profit or loss Remeasurements of defined benefit plans -147 32 -115 -274 52 -222

Items that may be reclassified subsequently to profit or loss Translation differences on foreign operations -1 804 – -1 804 547 – 547 - realized and reclassified to profit and loss -33 – -33 -7 – -7 Cash flow hedges – – – -22 5 -17 Total other comprehensive income -1 984 32 -1 952 244 57 301

Attributable to non-controlling interests Translation differences on foreign operations -8 – -8 0 – 0 Total other comprehensive income -1 992 32 -1 960 244 57 301

11. Earnings per share

Earnings per share Average number of shares outstanding

Amounts in SEK 2020 2019 In thousands of shares 2020 2019 Basic earnings per share 4.48 4.89 Basic weighted average number Diluted earnings per share 4.48 4.89 of shares outstanding 1 204 483 1 200 887 Effect of employee stock options 659 1 289 The calculation of earnings per share presented above is based on Diluted weighted average number profits and average number of shares as detailed below. of shares outstanding 1 205 142 1 202 176

Profit for the year attributable to owners of the parent

Amounts in MSEK 2020 2019 Profit for the year 5 399 5 874

Epiroc Annual and Sustainability Report 2020 103 GROUP NOTES 12. Intangible assets 12. Intangible assets

Impairment tests are performed annually, and whenever there are In 2020, the estimated value of all Epiroc’s operating segments indications of impairment during the year. Goodwill is allocated and exceeded their carrying values, and no impairment was recognized. tested at the level of cash-generating units, identified as Epiroc’s Epiroc also performed sensitivity analysis altering the most critical operating segments. The recoverable amount for each cash-gener- assumptions, including revenue growth, gross margin development, ating unit has been determined on the basis of value in use in Epiroc’s WACC and perpetual growth rate, and concluded that neither of such valuation model. Epiroc’s valuation model is based on discounted scenarios would give rise to any impairment charge. future cash flows, with a forecast period of five years. The forecast is based on the business plan of each operating segment, considering the characteristics and development of its particular end markets The table below presents the carrying value of goodwill allocated to based on both internal and external sources, and represents manage- operating segments (cash generating units) and reporting segments. ment’s best estimate of the development of its business operations. Goodwill The parameters used to calculate future cash flows are assumptions on revenue growth, gross margin development, functional cost effi- 2020 2019 ciency, as well as capital efficiency, including planned capital expen- Underground Division 148 145 ditures and target levels of working capital. Surface Division 462 501 Parts & Services Division 343 332 Epiroc’s weighted average cost of capital (WACC) is calculated at 8% (8) after-tax. As the operating segments are all relatively diversi- Equipment & Service 953 978 fied with similar geographic coverage, and to a large extent have sim- Tools & Attachments Division 1 096 1 207 ilar organization structure and customer base, the same discount rate Tools & Attachments 1 096 1 207 is used for all segments. The perpetual growth beyond the forecast Total 2 049 2 185 period is assumed at 2 % (2).

Amortization and impairment of intangible assets are recognized on the following line items in the income statement:

2020 2019 Internally Internally generated Acquired generated Acquired Cost of sales 0 2 0 21 Administrative expenses 24 29 14 18 Marketing expenses 1 30 1 107 Research and development expenses 267 29 289 21 Total 292 90 304 167

Impairment charges on intangible assets totaled 4 (66) of which 4 (0) (17) as cost of sales. Of the impairment charges, 4 (0) were due to cap- were classified as research and development expenses in the income italized development costs relating to discontinued projects. statement, and 0 (49) were classified as marketing expenses and 0

Internally generated Acquired

Other Marketing Other Product technology and and customer technology and 2020 development contract based Trademarks related contract based Goodwill Total Cost Opening balance, Jan. 1 3 126 257 189 537 1 197 2 185 7 491 Additions 340 102 – – 56 – 498 Business acquisitions – – – – 1 37 38 Divestment of business – – -91 -46 -24 -1 -162 Disposals -142 -12 – -8 -61 – -223 Reclassification 7 – – – 1 – 8 Translation differences -138 -11 -11 -52 -49 -172 -433 Closing balance, Dec. 31 3 193 336 87 431 1 121 2 049 7 217

Amortization and impairment losses Opening balance, Jan. 1 2 069 236 130 308 522 – 3 265 Amortization for the period 256 32 7 26 57 – 378 Impairment charge for the period 4 – – – – – 4 Divestment of business – – -91 -46 -24 – -161 Disposals -142 -10 – -8 -51 – -211 Reclassifications 7 – – – – – 7 Translation differences -93 -12 -5 -29 -37 – -176 Closing balance, Dec. 31 2 101 246 41 251 467 – 3 106

Carrying amounts At Jan. 1 1 057 21 59 229 675 2 185 4 226 At Dec. 31 1 092 90 46 180 654 2 049 4 111

104 Epiroc Annual and Sustainability Report 2020 GROUP NOTES 12. Intangible assets, cont.

Internally generated Acquired

Other Marketing Other Product technology and and customer technology and 2019 development contract based Trademarks related contract based Goodwill Total Cost Opening balance, Jan. 1 2 904 241 138 456 887 1 876 6 502 Additions 308 16 – – 213 – 537 Business acquisitions – – 38 69 127 249 483 Divestment of business – – – – -15 -4 -19 Disposals -90 -4 -1 -9 -25 – -129 Reclassification -33 – 7 – -7 – -33 Translation differences 37 4 7 21 17 64 150 Closing balance, Dec. 31 3 126 257 189 537 1 197 2 185 7 491

Amortization and impairment losses Opening balance, Jan. 1 1 853 216 79 260 474 – 2 882 Amortization for the period 284 20 14 30 56 – 404 Impairment charge for the period – – 33 16 18 – 67 Divestment of business – – – – -11 – -11 Disposals -86 -4 -1 -9 -22 – -122 Reclassifications – – 3 – -4 – -1 Translation differences 18 4 2 11 11 – 46 Closing balance, Dec. 31 2 069 236 130 308 522 – 3 265

Carrying amounts At Jan. 1 1 051 25 59 196 413 1 876 3 620 At Dec. 31 1 057 21 59 229 675 2 185 4 226

Other technology and contract based intangible assets include com- are amortized. For information regarding amortization and impair- puter software, patents, and contract based rights such as licenses ment policies, see note 1. and franchise agreements. All intangible assets other than goodwill

13. Property, plant and equipment

Machinery Construction Total Buildings and in progress Right-of- Rental Right-of- Rental 2020 and land equipment and advances use asset Total equipment use asset equipment Cost Opening balance, Jan. 1 1 423 5 326 354 2 492 9 595 2 289 44 2 333 Additions 5 140 362 396 903 595 – 595 Divestment of business -61 – – -1 -62 – – – Disposals -85 -251 – -179 -515 -541 -32 -573 Reclassifications 14 237 -272 -7 -28 -215 -4 -219 Translation differences -130 -343 -9 -147 -629 -159 -2 -161 Closing balance, Dec. 31 1 166 5 109 435 2 554 9 264 1 969 6 1 975

Depreciation and impairment losses Opening balance, Jan. 1 553 3 925 – 504 4 982 1 088 32 1 120 Depreciation for the period 47 416 – 459 922 440 2 442 Divestment of business -48 – – -1 -49 – – – Disposals -44 -215 – -125 -384 -331 -27 -358 Reclassifications – -2 – -6 -8 -137 -4 -141 Translation differences -48 -250 – -51 -349 -86 -1 -87 Closing balance, Dec. 31 460 3 874 – 780 5 114 974 2 976

Carrying amounts At Jan. 1 870 1 401 354 1 988 4 613 1 201 12 1 213 At Dec. 31 706 1 235 435 1 774 4 150 995 4 999

Set out below are the carrying amounts of right-of-use assets by class of underlying asset recognized.

Right-of-use assets

Buildings Machinery and Rental 2020 and land equipment Total equipment Carrying amounts, Jan. 1 1 650 338 1 988 12 Carrying amounts, Dec. 31 1 517 257 1 774 4

Epiroc Annual and Sustainability Report 2020 105 GROUP NOTES 13. Property, plant and equipment, cont.

Machinery Construction Total Buildings and in progress Right-of- Rental Right-of- Rental 2019 and land equipment and advances use asset Total equipment use asset equipment Cost Opening balance, Jan. 1 1 225 5 214 262 2 239 8 940 2 213 100 2 313 Additions 16 171 314 323 824 915 – 915 Business acquisitions 158 96 7 16 277 – – – Divestment of business -16 -104 – -1 -121 -21 – -21 Disposals -33 -353 – -145 -531 -748 – -748 Reclassifications 37 196 -232 13 14 -134 -61 -195 Translation differences 36 106 3 47 192 64 5 69 Closing balance, Dec. 31 1 423 5 326 354 2 492 9 595 2 289 44 2 333

Depreciation and impairment losses Opening balance, Jan. 1 518 3 798 – 118 4 434 1 003 64 1 067 Depreciation for the period 48 437 – 435 920 547 12 559 Impairment charge for the period 15 12 – – 27 1 – 1 Divestment of business -12 -88 – – -100 -13 – -13 Disposals -32 -305 – -53 -390 -402 – -402 Reclassifications 3 – – – 3 -79 -47 -126 Translation differences 13 71 – 4 88 31 3 34 Closing balance, Dec. 31 553 3 925 – 504 4 982 1 088 32 1 120

Carrying amounts At Jan. 1 707 1 416 262 2 121 4 506 1 211 36 1 247 At Dec. 31 870 1 401 354 1 988 4 613 1 201 12 1 213

Depreciation and impairment of tangible assets are recognized on the following line items in the income statement:

2020 2019 Cost of sales 923 1 033 Administrative expenses 262 274 Marketing expenses 144 161 Research and development expenses 31 35 Other operating expenses 4 4 Total 1 364 1 507

Depreciation for the period relating to right-of-use assets amount to total 461 (447), whereof 321 (308) relates to Buildings and land, 138 (127) to Machinery and equipment and 2 (12) to Rental equipment. For more information regarding depreciation, see note 1.

14. Investments in associated companies and joint ventures

Accumulated capital participation

2020 2019 Opening balance, Jan. 1 201 208 Dividends -1 – Profit for the year after income tax 2 -12 Translation differences -14 5 Closing balance, Dec. 31 188 201

Summary of financial information for associated companies

Profit for Group’s 2020 Country Assets Liabilities Equity Revenues the year share, % 1) Shenzhen Nectar Engineering & Equipment Co. Ltd. China 93 21 72 85 2 25 Zhejiang GIA Machinery Manufacturing Co., Ltd. China 53 25 28 44 -1 49 Mobilaris MCE AB Sweden 88 36 22 73 2 34 ASI Mining LLC United States 180 49 131 153 5 34

Profit for Group’s 2019 Country Assets Liabilities Equity Revenues the year share, % 1) Shenzhen Nectar Engineering & Equipment Co. Ltd. China 146 71 75 120 5 25 Zhejiang GIA Machinery Manufacturing Co., Ltd. China 46 16 30 37 -4 49 Mobilaris MCE AB Sweden 32 23 9 31 -5 34 ASI Mining LLC United States 202 58 144 45 -26 34

1) The Epiroc percentage share of each holding represents both ownership interest and voting power.

The above table is based on the most recent financial reporting available from associated companies.

106 Epiroc Annual and Sustainability Report 2020 GROUP NOTES 15. Other financial assets 15. Other financial assets

Fair value of financial instruments under other financial assets corresponds to their carrying value.

2020 2019 Non-current assets Pension plan assets in excess of pension obligations (note 23) 30 17 Derivatives – designated for hedge accounting 0 2 Financial assets classified as amortized cost – finance lease receivables 207 265 – other financial receivables 514 723 Closing balance, Dec. 31 751 1 007 Current assets Financial assets classified as amortized cost – finance lease receivables 170 250 – other financial receivables 512 612 Closing balance, Dec. 31 682 862

The gross amount of finance lease receivables amounted to 379 to finance lease receivables and other financial receivables was 187 (520), of which 1 (5) have been impaired, and the gross amount of (264) and 740 (1 016) respectively, consisting primarily of reposses- other financial receivables amounted to 1 055 (1 375), of which 30 sion rights. See note 22 on finance leases as Group as lessor and note (40) have been impaired. The total estimated fair value of collateral 28 for information on credit risk

16. Inventories

2020 2019 Raw materials 381 530 Work in progress 1 478 1 627 Semi-finished goods 1 280 1 605 Finished goods 5 791 6 746 Closing balance, Dec. 31 8 930 10 508

Provisions for obsolescence and other write-downs of inventories write-downs have been reversed as a result of improved market recorded as cost of sales amounted to 483 (381). Reversals of write- conditions in certain markets. Inventories recognized as expenses downs which were recognized in earnings totaled 68 (106). Previous amounted to 13 718 (19 881).

17. Trade receivables

Fair value for trade receivables corresponds to their carrying value. Trade receivables are classified at amortized cost.

Expected credit losses, trade receivables

2020 2019 Provisions at Jan. 1 437 355 Business acquisitions and divestments – 1 Provisions recognized for expected credit losses 304 259 Release of unnecessary provisions -70 -89 Write-offs -44 -96 Translation differences -76 7 Closing balance, Dec. 31 551 437

Trade receivables of 6 045 (7 287) are reported net of impairment The impairment assessed for individual receivables affected the amounting to 551 (437). Impairment recognized in the income state- loss provision negatively. The change in the provision for potential ment totaled 304 (259). Trade receivables are non-interest bearing credit losses is due to assessments made on an individual basis for and are generally on terms of 30 to 60 days. The acquisition of each receivable, which also takes into account future ability to pay, subsidiaries increased trade receivables with 0 (283) at date of com- changed market conditions, and is not always linked to a change in pletion of the acquisitions. At year-end 2020, the expected credit the size of the balance sheet item. For credit risk information, see note loss amounted to 8.4% (5.7) of gross total customer receivables. 28.

Epiroc Annual and Sustainability Report 2020 107 GROUP NOTES 18. Other receivables 18. Other receivables

Fair value for other receivables corresponds to their carrying value.

2020 2019 Derivatives – recognized at fair value through profit and loss 167 99 Financial assets recognized at amortized cost – other receivables 790 972 – accrued income 47 46 Prepaid expenses 410 480 Closing balance, Dec. 31 1 414 1 597

Other receivables consist primarily of VAT claims and advances to of impairments, amounting to 1 414 (1 597). Accrued income relates suppliers. Accrued income relates mainly to service and construction mainly to service contracts where only passage of time is required projects. Prepaid expenses include items such as rent, insurance, before invoicing will occur. interest, IT and employee costs. Other receivables are reported net

19. Cash and cash equivalents

Cash and cash equivalents are classified at amortized cost. Fair value The committed, but unutilized, credit line is 4 000 (4 000), see note corresponds to their carrying value. Cash and cash equivalents are 21 for additional information. according to IFRS 9 subject to impairment according to the expected credit loss model. During 2020 the impairment was insignificant and 2020 2019 therefore not recognized. Cash 8 283 2 657 Cash equivalents 6 770 5 883 Cash and cash equivalents had an estimated average effective interest rate of 0.4% (0.7). The low interest rate environment persisted Closing balance, Dec. 31 15 053 8 540 during 2020, why the return is slightly lower than previous year.

20. Equity

At year-end, Epiroc’s share capital totaled 500 (500). The total The 2019 Annual General Meeting approved a mandate to the Board numbers of issued Epiroc shares were 1 213 738 703 (1 213 738 703) of Directors of Epiroc to repurchase, transfer and sell own shares shares, whereof 823 765 854 (823 765 854) shares class A and 389 in order to fulfil the obligations under Epiroc’s performance based 972 849 (389 972 849) shares class B, each with a quota value of employee stock option plans. Repurchase and sale will be made at approximately SEK 0.41 (0.41). Class A shares entitle the owner to one a price per share within the registered trading interval, at any given vote while class B shares entitle the owner to one tenth of a vote. point in time. The mandate was valid until Epiroc’s Annual General Class A shares and class B shares carry equal rights to a part of the Meeting 2020 and allowed: company’s assets upon liquidation and distribution of dividends. 1) Acquire not more than 3 250 000 series A shares ,whereof a maximum of 3 150 000 may be transferred to option holders under the The Board of Directors of Epiroc has been granted mandate by performance based personnel option plan 2019. Epiroc’s Annual General Meeting on May 12, 2020 to repurchase, 2) Acquire not more than 30 000 series A shares in order to hedge transfer and sell own shares in order to fulfil the obligations under for costs in relation to remuneration in form of synthetic shares for Epiroc’s performance based employee stock option plans. Repur- Board members. chase and sale will be made at a price per share within the registered 3) The sale of not more than 15 000 series A shares to cover costs trading interval, at any given point in time. The mandate is valid until related to previously issued synthetic shares to Board members. Epiroc’s Annual General Meeting 2021 and allows: 4) Sell not more than 7 900 000 series A shares icurrently held by 1) The acquisition of not more than 2 500 000 series A shares, the company, for the purpose of covering costs of fulfilling obli- whereof a maximum of 2 450 000 may be transferred to option gations related to the performance based personnel option plans holders under the performance based personnel option plan 2014, 2015 and 2016. 2020. 2) The acquisition of not more than 16 000 series A shares, later to During 2020 Epiroc divested 2 972 466 shares class A in accordance be sold on the market in connection with payment to Board mem- with mandates granted by the 2020 and 2019 Annual General Meet- bers who have opted to receive synthetic shares as part of their ing. As of December 31, 2020, Epiroc AB held 7 814 213 (10 786 679) remuneration. shares class A. More information regarding the employee stock option 3) The sale of not more than 33 000 series A shares to cover costs plans can be found in note 24. related to previously issued synthetic shares to Board members. 4) The sale of a maximum 5 900 000 series A shares currently held Reserves by the company, for the purpose of covering costs of fulfilling obli- Consolidated equity includes certain reserves which are described gations related to the performance based personnel option plans below: 2015, 2016 and 2017. Translation reserve The translation reserve comprises all exchange differences arising from the translation of the financial statements of foreign operations, the translation of intra-group receivables from or liabilities to foreign operations that in substance are part of the net investment in the foreign operations, as well as from the translation of liabilities that hedge the company’s net investments in foreign operations.

108 Epiroc Annual and Sustainability Report 2020 GROUP NOTES 20. Equity, cont.

Cash flow hedge reserve Amounts in SEK The hedging reserve comprises the effective portion of net changes in fair value for certain cash flow hedging instruments. Retained earnings including reserve for fair value 47 763 374 441 Non-controlling interest Profit for the year 2 633 865 387 The non-controlling interest amount to 46 (52). The non-controlling Total 50 397 239 828 interest is not material to the Group. The Board of Directors proposes that these earnings shall be appropriated as follows; Appropriation of profit To the shareholders, The Board of Directors proposes a dividend of SEK 2.50 (2.40) per a dividend of SEK 2.50 per share 3 014 811 225 share, totaling MSEK 3 015 (2 892) if shares held by the Company on redemption of shares of SEK 3.00 per share 3 617 773 470 December 31, 2020 are excluded. In addition to that a distribution of To be retained in the business 43 764 655 133 SEK 3.00 per share, equal to MSEK 3 618, through a mandatory share Total 50 397 239 828 redemption procedure, in which each share is split into one ordinary share and one redemption share. The redemption share is then auto- The proposed dividend for 2019 of SEK 1.20 per share, as approved matically redeemed at SEK 3.00 per share. by the Annual General Meeting on May 12, 2020, was accordingly paid by Epiroc AB. A second dividend of SEK 1.20 per share was approved at an Extraordinary General Meeting November 27. Total dividend paid by Epiroc AB amounted to SEK 2 891 703 534. 21. Borrowings

2020 2019 Carrying Carrying Maturity amount Fair value amount Fair value Non-current Medium Term Note Program MSEK 1 250, Fixed 2023 1 246 1 307 1 246 1 311 Medium Term Note Program MSEK 750, Floating 2023 749 773 749 771 Medium Term Note Program MSEK 1 000, Fixed 2026 996 1 035 – – Medium Term Note Program MSEK 1 000, Floating 2026 998 1 048 – – Bilateral borrowings MEUR 100, Floating 2022 1 004 1 015 1 043 1 058 Bilateral borrowings MSEK 2 000, Floating 2025 1 996 2 030 1 995 2 006 Bilateral borrowings MSEK 1 000, Floating 2027 998 1 057 998 1 042 Other bank loans 80 80 65 65 Less current portion of long-term borrowings -20 -20 -14 -14 Total non-current bonds and loans 8 047 8 325 6 082 6 239 Lease liabilities 1 442 1 442 1 640 1 640 Other financial liabilities 2 2 2 2 Total non-current borrowings 9 491 9 769 7 724 7 881 Current Current portion of long-term borrowings 20 20 14 14 Loans 176 176 294 294 Lease liabilities 371 371 394 394 Other financial liabilities 97 97 3 3 Total current borrowings 664 664 705 705 Closing balance Dec. 31 10 155 10 433 8 429 8 586

The difference between carrying amount and fair value of borrowings relates to the measurement method as certain liabilities are reported at fair value and not at amortized cost. See additional information about the Group’s exposure to interest rate risk and foreign currency risk in note 28. Debt in the Group is primarily raised by the Parent Company and transferred to subsidiaries as internal loans or capital injections. Financing is also undertaken locally in countries in which there are legal restrictions preventing financing through Group companies. In November 2020, the Group issued bonds of 2 000 maturing in 2026. The funds were used to repay a short-term facility entered into in June 2020 due to increased economic uncertainty following the Covid-19 pandemic. During the year the Group also used the last of two extension options in the bilateral loan agreement with Swedish Export Credit Corporation and Svenska Handelsbanken, where the maturity was extended to 2025. Furthermore, the last of two extension options was used in the revolving credit facility agreement (RCF), which extended the maturity of the RCF to 2025. In November 2020, S&P Global Ratings reconfirmed Epiroc’s BBB+ credit rating with a stable outlook. The table below shows the Group’s back-up facilities.

Back-up facilities

2020 2019 Facility size Utilized Facility size Utilized Revolving credit facility 1) 4 000 – 4 000 – Commercial paper program 2 000 – 2 000 – Total back-up facilities 6 000 – 6 000 –

1) The revolving credit facility matures in 2025.

Epiroc Annual and Sustainability Report 2020 109 GROUP NOTES 21. Borrowings, cont. Reconciliation of changes in liabilities

Opening Impact Other Fair value Closing balance of change in changes Acquired/ change Foreign balance January 1, accounting Financing New in lease divested through exchange Reclassi- Dec. 31, 2020 2020 policies cash flows leases liabilities companies P/L movement fication 2020 Non-current Loans and bonds 6 082 – 2 004 – – – 1 -40 – 8 047 Lease liabilities 1 640 – -36 226 -23 -18 – -74 -273 1 442 Other financial liabilities 2 – – – – – – 0 – 2 Total non-current borrowings 7 724 – 1 968 226 -23 -18 1 -114 -273 9 491 Current Loans 308 – -58 – – – – -54 – 196 Lease liabilities 394 – -422 170 -15 -2 – -27 273 371 Other financial liabilities 3 – 94 – – – – 0 – 97 Total current borrowings 705 – -386 170 -15 -2 – -81 273 664 Total 8 429 – 1 582 396 -38 -20 1 -195 0 10 155

Opening Impact Closing balance of change in Acquired/ Fair value Foreign balance January 1, accounting Financing New divested change exchange Reclassi- Dec. 31, 2019 2019 policies 1) cash flows leases companies through P/L movement fication 2019 Non-current Loans and bonds 5 023 – 1 043 – 20 4 15 -23 6 082 Lease liabilities 71 1 690 – 126 11 – 31 -289 1 640 Other financial liabilities 1 – – – – – 1 – 2 Total non-current borrowings 5 095 1 690 1 043 126 31 4 47 -312 7 724 Current Loans 1 654 – -1 431 – 44 – 29 12 308 Lease liabilities 36 357 -423 118 4 – 13 289 394 Other financial liabilities 12 – -8 – – – -1 – 3 Total current borrowings 1 702 357 -1 862 118 48 – 41 301 705 Total 6 797 2 047 -819 244 79 4 88 -11 8 429 1) Opening balance adjusted with 2 047 due to adoption of IFRS 16.

22. Leases

Leases – lessee The amounts recognized in the income statement during 2020 are The Group has lease contracts primarily from rented premises, the following; machinery, and computer and office equipment. Lease contracts for office, factory facilities and machines typically run for a period of 3 to 2020 2019 15 years, while motor vehicles and other equipment generally have Costs for low value assets -34 -32 lease terms between 2 and 5 years. For a limited number of lease Costs for short-term leases -41 -55 contracts, purchase and renewal options exist for machinery and Cost relating to variable lease renewal options exist for premises. The Group has leases of certain payments not included in the office equipment (i.e. personal computers, printing and photocopying measurement of lease liability -6 -33 machines) that are considered leases of low value. Also, if the lease Income from subleasing right- contract has a lease term that is less than 12 months, the lease is con- of-use assets externally 11 8 sidered as short-term lease and such payments are recognized as an Gains/losses arising from sale expense over the lease term. and leaseback transactions – – The carrying amount of right-of-use assets as of December 31, 2020, amount to 1 778 (2 000). See note 13 for the carrying amounts Interest expenses on lease liability -39 -38 of right-of-use assets by class of underlying asset recognized and Depreciation for the period -461 -447 movements during the period. Impairment charges for the period – – The carrying amounts of lease liabilities (included under interest-bearing liabilities) are presented below. For information on financial exposure and policies for control of financial risks see note 28. Lease liability 2020 2019 Carrying amounts, Jan. 1 2 034 2 154 Carrying amounts, Dec. 31 1 813 2 034 Non-current 1 442 1 640 Current 371 394 Total 1 813 2 034

See note 28 for maturity analysis of the lease liability. The Group had a cash outflow for lease liabilities of 457 (423), refer to note 21 for more information.

110 Epiroc Annual and Sustainability Report 2020 GROUP NOTES 22. Leases, cont. Leases – lessor Finance leases – lessor Operating leases – lessor The Group offers lease financing to customers via Epiroc Financial Epiroc has equipment which is leased to customers under operating Solutions and certain other subsidiaries. See note 28 for information leases. Long-term operating lease contracts are financed and admin- on financial exposure and policies for control of financial risks. Future istrated by Epiroc Financial Solutions and certain other subsidiaries. lease payments to be received fall due as follows:

Future payments for non-cancelable operating leasing contracts fall 2020 2019 due as follows: Fall due year: 2020 – 196 2020 2019 2021 86 151 Fall due year: 2022 123 121 2023 84 79 2020 – 286 2024 57 9 2021 219 115 2025 46 1 2022 118 91 >2025 1 0 2023 67 50 2024 31 16 Undiscounted lease payments 397 557 2025 11 0 Unguaranteed residual value 1 0 >2025 0 0 Less: Unearned finance income 21 37 Total 446 558 Present value of lease payments receivable 377 520

During 2020, lease income relating to operating lease contracts Impairment loss allowance -1 -5 amount to 598 (686). Net investment in the lease 376 515

During the year, the finance lease receivables decreased mostly due to divestments of Financial Solutions credit portfolios.

The selling profit/loss (net) recognized in the income statement amount to 103 (82), and the finance income on the net investment in the lease amount to 7 (7).

23. Post-employment benefits

Post-employment benefits portfolio should be diversified, which means that multiple assets Epiroc provides post-employment defined benefit pension pension classes, markets and issuers should be utilized. An asset liability plans and other long-term employee benefits in most of its major management assessment should be conducted periodically. The study locations. The most significant countries in terms of size of plans are should include a number of elements. The most important elements are Sweden, Germany, Switzerland and India. the duration of the assets and the timing of settlement of liabilities, the The plans in the four most significant countries are funded with expected return of the assets, the expected development of liabilities, different local financing vehicles, held separated from the Group for the forecasted cash flows and the impact of a shift in interest rates on the future benefit payments. In Sweden the financing vehicle for the the obligation. main ITP2-plans retirement pension is the Group’s pension founda- The net obligations for post-employment benefits and other long- tion. In addition, the Epiroc family pension under ITP2 is insured by a term employee benefits have been recognized in the balance sheet third party insurer, Alecta. This plan is recognized as a defined contri- as follows: bution plan as sufficient information for calculating the net pension 2020 2019 obligation is not available. Alecta’s surplus can be distributed among the policyholders and/or the insured. At the end of 2020, Alecta’s Financial assets (note 15) -30 -17 surplus of its so-called collective funding amounted to 148% (148). Post-employment benefits 806 596 The collective funding consists of the fair value of Alecta’s assets as Other provisions (note 26) 74 68 a percentage of the insurance obligations calculated in accordance Closing Balance, net 850 647 with Alecta’s actuarial calculation assumptions. The Group identifies a number of risks in the investments of pension plan assets. The main risks are interest rate risk, market risk, count- The tables below show the Group’s obligations for post-employment er-party risk, liquidity risk, inflation risk and currency risk. The risk that benefits and other long-term employee benefits, the assumptions the managed pension assets will not cover the pension commitments used to determine these obligations and the assets relating to these is also affected by the life expectancy and any large wage increases. obligations for employee benefits, as well as the amounts recognized The Group works continuously to manage the risks and ensure that in the income statement and the balance sheet. the investment orientations reflect Epiroc´’s risk tolerance level and that The net amount recognized in the balance sheet amounted to 850 the investments have a long-term investment horizon. The investment (647). The weighted average remaining duration of the obligation is 23.3 (22.6) years.

Post-employment benefits

Funded Unfunded Other Other 2020 pension plans pension plan funded plans unfunded plans Total Present value of defined benefit obligations 2 139 38 5 69 2 251 Fair value of plan assets -1 397 – -4 – -1 401 Present value of net obligations 742 38 1 69 850 Effect of asset ceiling – – – – – Other long-term service obligations – – 0 – – Net amount recognized in balance sheet 742 38 1 69 850

Epiroc Annual and Sustainability Report 2020 111 GROUP NOTES 23. Employee benefits, cont.

Funded Unfunded Other Other 2019 pension plans pension plan funded plans unfunded plans Total Present value of defined benefit obligations 1 750 48 3 65 1 866 Fair value of plan assets -1 216 – -3 – -1 219 Present value of net obligations 534 48 0 65 647 Effect of asset ceiling 0 – – – 0 Other long-term service obligations – – – – 0 Net amount recognized in balance sheet 534 48 0 65 647

Plan assets consist of the following:

Quoted Unquoted 2020 market price market price Total Debt instruments 232 – 232 Equity instruments 107 – 107 Property 22 443 465 Assets held by insurance companies 41 – 41 Cash 148 – 148 Investment funds 403 – 403 Derivatives – 5 5 Closing balance, Dec 31 953 448 1 401

Quoted Unquoted 2019 market price market price Total Debt instruments 211 – 211 Equity instruments 93 – 93 Property 21 334 355 Assets held by insurance companies 155 – 155 Cash 83 – 83 Investment funds 322 – 322 Closing balance, Dec 31 885 334 1 219

Movement in plan assets Movement in present value of the obligations for defined benefits

2020 2019 2020 2019 Fair value of plan assets at Jan. 1 1 219 1 241 Defined benefit obligations at Jan. 1 1 866 1 554 Interest income 21 30 Current service cost 104 97 Remeasurement – return on plan assets 183 -7 Past service cost -4 -9 Settlements -2 -30 Gain/loss on settlement 1 2 Other significant events – 9 Interest expense (+) 33 39 Employer contributions 3 11 Other significant events – 16 Plan members contributions 1 1 Actuarial gains (–)/ losses (+) arising Benefit paid by the plan -10 -44 from experience adjustments 172 37 Reclassifications – – Actuarial gains (–)/ losses (+) arising Translation differences -14 8 from financial assumptions 165 241 Actuarial gains (–)/ losses (+) arising Fair value of plan assets at Dec 31 1 401 1 219 from demographic assumptions 1 0 Settlements 0 -30 The plan assets are allocated among the Benefits paid from plan or company assets -57 -93 following geographic areas: Translation differences -30 12 2020 2019 Defined benefit obligations, Dec. 31 2 251 1 866 Europe 1 366 1 180 of which Sweden 985 966 Remeasurements recognized in other comprehensive income Rest of the world 35 39 amounts to 147 (274) and 8 (16) in profit and loss. The Group expects to Total 1 401 1 219 pay 43 (46) in contributions to defined benefit plans in 2021.

Expenses recognized in the income statement Asset ceiling 2020 2019 2020 2019 Current service cost 104 97 Asset ceiling at Jan. 1 – 7 Past service cost -4 -9 Remeasurements – asset ceiling – -7 Gain/loss on settlements 1 2 Translation difference – 0 Net interest cost 12 9 Asset ceiling, Dec. 31 – 0 Employee contribution 0 1 Remeasurement of other long-term benefits 8 16 Total 121 116

The total benefit expense for defined benefit plans amounted to 121 (116) of which 109 (107) has been charged to related functions under operating expenses and 12 (9) to financial expenses. Expenses related to defined contribution plans amounted to 329 (293).

112 Epiroc Annual and Sustainability Report 2020 GROUP NOTES 24. Share-based payment Principal actuarial assumptions at the balance sheet which is similar in structure as the previous stock option plans date (expressed as weighted averages, in %) decided by the Annual General Meeting. The performance based employee stock option plan is directed at 2020 2019 a maximum of 100 key employees in Epiroc, who will have the possi- Discount rate bility to acquire a maximum of 2 355 258 shares of Class A in Epiroc. Europe 1.32% 1.59% The issuing of options depend on the value increase expressed as Future salary increases Economic Value Added, of Epiroc during 2020. In an interval of SEK Europe 2.69% 2.67% 700 000 000, the issue varies linear from zero to 100% of the maximum number of options. The participating key employees are divided The Group has identified discount rate and future salary increases into different categories, with different amount of maximum issues as the primary actuarial assumptions for determining defined ben- of options, depending on their positions. The issuing of options will efit obligations. Changes in those actuarial assumptions affect the take place no later than March 20, 2021. The term of the options is present value of the net obligation. The discount rate is determined seven years from granting, and the options are exercisable not earlier by reference to market yields at the balance sheet date using, if avail- than three years from grant date. The exercise price shall be set at able, high quality corporate bonds (AAA or AA) matching the duration an amount corresponding to 110% of the average of the closing rates of the pension obligations. In countries where corporate bonds are on Nasdaq Stockholm of Epiroc’s Class A shares during a period of not available, government bonds are used to determine the discount ten business days following the date of the publishing of the Interim rate. In Sweden, in line with prior years, mortgage bonds are used for report Q4, 2020. A participant must still be employed in order to exer- determining the discount rate. cise its options. The options are not transferable. Epiroc’s mortality assumptions are set by country, based on the The costs of the performance based employee stock option plan most recent mortality studies that are available. Where possible, gen- will, on an on-going basis during the term of the plan, be reported in erational mortality assumptions are used, meaning that they include accordance with IFRS 2, and is estimated to amount up to approxi- expected improvements in life expectancy over time. mately 52. The estimated costs for advice and administration linked The table below shows the sensitivity analysis for discount rate to the program are approximately 3.5. In order to limit the exposure of and salary, and describes the potential effect on the present value of the performance based employee stock option plan, hedging mea- the defined pension obligation. sures have been adopted in the form of share buy-backs (see note 20), which can be transferred to the participants of the plan pursuant Sensitivity analysis to resolutions passed at the Annual General Meeting of Epiroc. A prerequisite for the participation of the senior executives (11 par- Europe 2020 2019 ticipants) in the performance based employee stock option plan is an Change in discount rate + 0.50% -235 -187 investment of a maximum of ten percent of the participants’ respec- Change in discount rate - 0.50% 271 217 tive base salary for 2020 before tax, in series A shares of Epiroc. The Salary increase 0.50% -99 -70 investments may be made in cash or by payment of shares, however Salary decrease 0.50% 112 91 not shares that are obtained as a part of the performance based employee stock option plans for 2018 – 2019. Senior executives who have invested in Epiroc series A shares as a part of the employee stock option plan, in addition to the proportional participation in 24. Share-based payments the plan, for each share acquired have a right (a “matching option”) to acquire a share three years after the grant until the expiration Share value based incentive programs of the employee stock option plan 2020 at a price equal to 75% of the market value upon which the exercise price of the shares in the Performance based employee stock option plan 2015-2019 2020 employee stock option plan was based, subject to continued Employees in Epiroc have prior to 2018 been offered to participate employment and continued ownership of the shares. in certain share-based payment programs offered by Atlas Copco. For all the programs, 2016–2020, a total maximum of 6 749 179 At the time when the Epiroc shares were listed, Atlas Copco had shares could be delivered to employees, corresponding to approxi- four programs in place, 2014-2017, in which certain Epiroc employ- mately 0.6 % of the total number of shares in Epiroc. ees were participants. The performance based employee stock The Board of Epiroc has the right to decide to implement an alter- option plans in Atlas Copco were in accordance with their terms split native incentive solution (SARs) for key persons in such countries between Atlas Copco and Epiroc in connection with the distribution where the grant of employee stock options is not feasible. In the and listing of Epiroc on Nasdaq Stockholm. Approximately 90 key 2015–2019 programs, the options have been, on request by option- employees of Epiroc have under the performance based stock option ees in Sweden, possible to be settled by the Company paying cash plan for the years 2015-2019 received options related to Epiroc and equal to the excess of the closing price of the shares over the exer- receive incentives related to performance of Epiroc. cise price on the exercise day, less any administrative fees. Due to this The terms and conditions of the performance based employee choice of settlement by the Swedish employees, these options were stock option plans for the years 2015–2019 are in all material aspects classified for accounting purposes as cash-settled in accordance similar to the terms and conditions of the performance based with IFRS 2. As from October 2020, this possibility is removed from employee stock option plan for 2020 in Epiroc, as described below. the terms and therefore only those options in the 2016-2017 plans More details of the programs are found in table “Summary of share are accounted for as cash-settled if the participant has opted for this value based incentive programs” (see page 115). possibility. For the plans 2018 and onwards no options are accounted for as cash-settled. Performance based employee stock option plan 2020 The Black-Scholes model is used to calculate the fair value of The Annual General Meeting of Epiroc held on May 12, 2020, thus the options/SARs in the programs at issue date. For the programs in resolved, based on a proposal from the Board of Directors, to intro- 2020, the fair value of the options/SARs was based on the following duce a performance based employee stock option plan for 2020, assumptions:

Epiroc Annual and Sustainability Report 2020 113 GROUP NOTES 24. Share-based payment, cont. Key assumptions

2020 Program 2019 Program (Dec. 31, 2020) (Dec. 31, 2019) Expected exercise price SEK 164.62/112.24 1) SEK 125.79/85.76 1) Expected volatility 30% 30% Expected options life (years) 4.64 4.64 Expected share price SEK 149.65 SEK 114.35 Expected dividend (growth) SEK 2.40 (6%) SEK 2.10 (6%) Risk free interest rate 1.00% 1.00% Expected average grant value SEK 21.93/43.03 1) SEK 19.99/33.58 1) Number of outstanding options 2 143 282 2 888 142 – of which forfeited 2) -1 611 191 -1 943 161 Number of matching options 37 891 44 784

1) Matching options for senior executives. 2) Including adjustments for performance achievement.

The expected volatility has been determined by analyzing the historic development of the Epiroc A Share price and other shares on the stock market. When determining the expected option life, assumptions have been made regarding the expected exercising behavior of different categories of optionees.

For the stock options in 2015–2020 programs, the fair value is recognized as an expense over the following vesting periods:

Program

Vesting period Exercise period Stock options From To From To 2015 May-15 Apr-18 May-18 Apr-20 2016 May-16 Apr-19 May-19 Apr-23 2017 May-17 Apr-20 May-20 Apr-24 2018 May-18 Apr-21 May-21 Apr-25 2019 May-19 Apr-22 May-22 Apr-26 2020 May-20 Apr-23 May-23 Apr-27

For the 2020 program, a new valuation of the fair value has been made and will be made at each reporting date until the issue date, which as indicated below will occur in March 2021.

Timeline 2020 option plan

Annual Information Sr. Executives’ Exercise Issue General of grant own investments price set of options Plan expires Meeting

Vesting period Options and matching options exercisable

May 2020 May 2020 Sept. 2020 Feb. 2021 March 2021 May 1, 2023 April 30, 2027

For SARs and the options classified as cash-settled, the fair value is recognized as an expense over the same vesting period; the fair value is, however, remeasured at each reporting date and changes in the fair value after the end of the vesting period continue to be recognized as a personnel expense. In accordance with IFRS 2, the expense in 2020 for the Group for all share-based incentive programs amounted to 69 (159) excluding social costs of which 26 (9) refers to equity-settled options. The related costs for social security contributions are accounted for in accordance with the statement from the Swedish Financial Reporting Board (UFR 7) and are classified as personnel expenses. In the balance sheet, the provision for the Group for share appreciation rights and stock options classified as cash-settled as of December 31, 2020, amounted to 121 (157). See additional information about the Group’s share-based incentive program in note 5.

114 Epiroc Annual and Sustainability Report 2020 GROUP NOTES 24. Share-based payment, cont. Summary of share value based incentive programs

Initial number Number of Expiration Exercise Type of Fair value at Intrinsic value for Program of employees options date price, SEK share grant date vested SARs Stock options 2015 41 1 308 754 4/30/20 47.43 A 8.39 – 2016 66 4 966 702 4/30/23 75.75 A 16.53 – 2017 64 2 095 148 4/30/24 94.38 A 15.90 – 2018 63 1 976 817 4/30/25 96.83 A 15.63 – 2019 70 743 903 4/30/26 129.78 A 6.48 –

Matching options 2015 2 8 735 4/30/20 32.43 A 15.65 – 2016 3 11 029 4/30/23 51.79 A 26.29 – 2017 7 22 993 4/30/24 64.37 A 26.84 – 2018 11 50 566 4/30/25 66.02 A 27.11 – 2019 13 44 784 4/30/26 88.49 A 14.14 –

Share appreciation rights 2015 8 311 567 4/30/20 47.43 A – 102.22 2016 12 954 761 4/30/23 75.75 A – 73.90 2017 14 446 150 4/30/24 94.38 A – 55.27 2018 24 555 408 4/30/25 96.83 A – – 2019 21 184 998 4/30/26 129.78 A – –

Number of options/rights 2020

Conversion Stock Time to Average stock Outstanding options/Share Expired/ Outstanding –of which expiration, price for exercised Program January 1 appreciation rights Exercised forfeited December 31 exercisable in months options, SEK

Stock options 2015 186 273 – 186 273 – – – – 104.94 2016 2 346 981 -534 921 948 590 145 580 717 890 717 890 4 128.63 2017 1 965 284 -745 438 552 274 148 765 518 807 518 807 16 126.63 2018 1 860 889 – – 46 284 1 814 605 – 28 – 2019 759 983 – – 16 080 743 903 – 40 –

Matching options 2016 2 847 – 2 847 – – – 4 127.40 2017 21 285 – 9 680 – 11 605 11 605 16 140.65 2018 50 566 – – – 50 566 – 28 – 2019 44 784 – – – 44 784 – 40 –

Share appreciation rights 2015 21 264 – 21 264 – – – – 85.51 2016 409 231 534 921 308 018 – 636 134 636 134 4 131.10 2017 356 891 745 438 79 620 29 753 992 956 992 956 16 135.24 2018 509 233 – – 46 284 462 949 – 28 – 2019 184 998 – – – 184 998 – 40 –

Number of options/rights 2019

Time to Average stock Outstanding Expired/ Outstanding –of which expiration, price for exercised Program January 1 Exercised forfeited December 31 exercisable in months options, SEK Stock options 2015 1) 1 040 614 854 341 – 186 273 186 273 4 102.34 2016 2) 4 748 332 2 247 280 154 071 2 346 981 2 346 981 16 101.07 2017 3) 2 005 889 – 40 605 1 965 284 – 28 – 2018 4) 1 907 173 – 46 284 1 860 889 – 40 –

Matching options 2015 8 735 8 735 – – – 4 111.40 2016 11 029 5 953 2 229 2 847 2 847 16 117.60 2017 22 993 – 1 708 21 285 – 28 – 2018 50 566 – – 50 566 – 40 –

Share appreciation rights 2015 311 567 290 303 – 21 264 21 264 4 101.23 2016 881 971 399 950 72 790 409 231 409 231 16 104.70 2017 416 397 – 59 506 356 891 – 28 – 2018 555 517 – 46 284 509 233 – 40 –

1) of which 99 813 have been accounted for as cash-settled 2) of which 1 435 711 have been accounted for as cash-settled 3) of which 1 429 730 have been accounted for as cash-settled 4) of which 1 374 907 have been accounted for as cash-settled

Epiroc Annual and Sustainability Report 2020 115 GROUP NOTES 25. Other liabilities 25. Other liabilities

Other financial liabilities are classified at amortized cost. Fair value of other liabilities corresponds to carrying value.

Other current liabilities

2020 2019 Derivatives – classified at fair value through profit and loss 56 74 Other financial liabilities – other liabilities 438 583 – accrued expenses 2 265 2 370 Advances from customers 1) 1 031 795 Deferred revenues service contracts 1) 121 108 Closing balance, Dec 31 3 911 3 930

1) In advances from customers and deferred revenue, 929 (695) are related to contract liabilities. The decrease from prior year is the result of less advances from the decrease of orders received. 433 (878) of the advances from customers and deferred revenue 2019 have been recognized as revenue during 2020.

Accrued expenses include items such as social costs, vacation pay liability, accrued interest, and accrued operational expenses.

26. Provisions

2020 Product warranty Restructuring Other Total Opening balance, Jan. 1 207 45 362 614 During the year – provisions made 132 95 214 441 – provisions used -106 -59 -185 -350 – provisions reversed -36 -2 -14 -52 Reclassification -1 – 1 0 Translation differences -20 -3 -11 -34 Closing balance, Dec. 31 176 76 367 619 Non-current 10 34 279 323 Current 166 42 88 296 Total 176 76 367 619

2020, Maturity Product warranty Restructuring Other Total Less than one year 166 42 88 296 Between one and five years 10 33 259 302 More than five years 0 1 20 21 Total 176 76 367 619

2019 Product warranty Restructuring Other Total Opening balance, Jan. 1 217 40 319 576 During the year – provisions made 168 25 274 467 – provisions used -124 -19 -225 -368 – provisions reversed -61 – -10 -71 Translation differences 7 -1 4 10 Closing balance, Dec. 31 207 45 362 614 Non-current 5 35 285 325 Current 202 10 77 289 Total 207 45 362 614

2019, Maturity Product warranty Restructuring Other Total Less than one year 202 10 77 289 Between one and five years 5 34 233 272 More than five years – 1 52 53 Total 207 45 362 614

Other provisions consist primarily of amounts related to share-based payments including social fees and other long-term employee benefits (see note 24).

116 Epiroc Annual and Sustainability Report 2020 GROUP NOTES 27. Assets pledged and contingent liabilities 27. Assets pledged and contingent liabilities

Epiroc had 61 (49) in securities and other contingent liabilities. These commercial guarantees for fulfilment of contractual undertakings primarily relate to pension commitments and commitments related which is part of the Group’s normal course of business of 209 (206). to customer claims and various legal matters. In addition, Epiroc has

28. Financial risk management

Epiroc is in its operations exposed to a variety of financial risks; fund- Net debt ing and liquidity risk, currency risk, interest rate risk and credit risk. Net debt is defined as interest-bearing liabilities and post- employment benefits, adjusted for the fair value of interest rate Organization swaps, less cash and cash equivalents and certain other financial The Board of Directors establishes the Group’s financial risk policy. receivables. The position for December 31, was: The Group has a Financial Risk Management Committee (FRMC) that manages the Group’s financial risks within the mandate given by the Net debt and net debt/equity ratio Board of Directors. The members of the FRMC are the CEO, CFO, 2020 2019 Group Treasurer and representatives from Group Treasury. The FRMC meets quarterly or more frequently if circumstances require. Interest-bearing liabilities 10 155 8 429 Group Treasury has the operational responsibility for financial risk Post-employment benefits 806 596 management in the Group. Group Treasury manages and controls Cash and cash equivalents -15 053 -8 540 financial risk exposures, ensures that appropriate financing is in Certain other financial receivables -45 -2 place through loans and committed credit facilities and manages the Net debt -4 137 483 Group’s liquidity. Group Treasury reports to the FRMC quarterly and the FRMC Total equity 23 739 22 813 reports to the Audit Committee. Net debt/equity ratio, % -17.4 2.1

Rating Another variable in the assessment of the Group’s capital structure is Board of Directors Policies the credit rating. In November 2020, S&P Global Ratings reconfirmed Epiroc AB Epiroc’s BBB+ credit rating with a stable outlook.

Funding and liquidity risk Funding and liquidity risk is defined as the risk of the cost being higher and financing opportunities limited as the borrowing is rene- Financial Risk Management Decisions gotiated and the payment obligations cannot be met as a result of Committee (FRMC) insufficient liquidity or difficulties in securing funding.

Policy The policy states the minimum average tenor, i.e. time to maturity Executing and Group Treasury (three years), and the maximum amount that can mature within the monitoring next 12 months (MSEK 3 000). According to the policy the Group should maintain a minimum of committed credit facilities (MSEK 4 000) and ensure a short-term liquidity reserve, which comprises cash, cash equivalents and uncommitted credit facilities.

Capital structure Comments for the year The Group defines capital as borrowings and equity. The Group’s In November, the Group issued bonds of MSEK 2 000, maturing in financial goals include an efficient capital structure and the flexibility 2026. The funds were used to repay a short-term facility entered to make selective acquisitions, while maintaining an investment into in June 2020 due to increased economic uncertainty following grade rating. The Group’s goal is to provide long-term stable and rais- the Covid-19 pandemic. As back-up facilities, the Group has a MSEK ing dividends to its shareholders. The dividend should correspond to 4 000 revolving credit facility and a MSEK 2 000 commercial paper 50% of net profit over the cycle. The capital requirement is assessed program, both unutilized at year-end. on the basis of ratios as net debt/equity and net debt/EBITDA. As per December 31, 2020, the Group’s total interest-bearing liabilities amounted to 10 155 (8 429). The average time to maturity of the Group’s external debt was 4.2 years (4.6) at year-end. Cash and cash equivalents for the Group totals to 15 053 (8 540). For more information on borrowings, maturities and back-up facilities, see note 21. The following table shows the maturity structure of the Group’s financial liabilities. The figures shown are contractual undiscounted cash flows based on contracted date, when the Group is liable to pay, including both interest and nominal amounts. The Group’s short-term liquidity reserve exceeds financial liabilities due within 2021.

Epiroc Annual and Sustainability Report 2020 117 GROUP NOTES 28. Financial risk management, cont. Financial liabilities - future undiscounted cash flows

2020 2021 2022 2023 2024 2025 >2025 Liabilities to credit institutions 57 1 101 2 082 36 2 035 3 026 Lease liabilities – 350 268 188 157 520 Derivatives – – – – – – Other liabilities – 39 – – – – Non-current financial liabilities 57 1 490 2 350 224 2 192 3 546 Liabilities to credit institutions 20 – – – – – Lease liabilities 409 – – – – – Derivatives 56 – – – – – Other accrued expenses 2 266 – – – – – Trade payables 3 605 – – – – – Other liabilities 429 – – – – – Current financial liabilities 6 785 – – – – – Total financial liabilities 6 842 1 490 2 350 224 2 192 3 546

Interest rate risk and when translating foreign subsidiaries’ balance sheets and income Interest rate risk is the risk that changes in market interest rates statements into SEK (translation exposure). affect the Group’s net interest. How quickly interest rate changes impact the net interest depends on the fixed interest term of the Transaction exposure borrowings, including interest rate derivatives. Transaction exposure primarily arises when the Group’s products are sold in other countries and in other currencies. Sales in each respec- Policy tive market primarily take place in local currency. These payment The policy states that the duration, i.e. period of which interest rates flows create currency exposures that affects the Group’s earnings in are fixed, of the loan portfolio should be within a range (6–48 months, the event of exchange rate fluctuations. with a benchmark of 12 months), including effects from interest rate derivatives. Policy The Group’s policy states that exposures shall be reduced by match- Comments for the year ing in- and outflows of the same currencies. Based on the assumption The Group’s borrowings have a mix of fixed and floating rates. The that hedging does not have any significant effect on the Group’s long- interest rate swaps previously designated as fair value hedges have term result, the policy recommends leaving transaction exposures been closed during 2020. The Group is exposed to benchmark unhedged on an ongoing basis. Divisional management is responsi- rates in borrowings at floating rate of 5 745. The Group has a project ble for maintaining readiness to adjust operations (price and cost) to in place to monitor and follow the development of the interest rate compensate for adverse currency movements. However, the FRMC benchmark reforms and analyze the future impact, including assess- can decide to hedge part of the transaction exposure. For these ing if there are fallback clauses, to ensure that the uncertainty from cases, transactions shall qualify for hedge accounting in accordance the reform is managed. The Group’s floating rate debt are linked to with IFRS and hedging beyond 18 months is not allowed. STIBOR and EURIBOR, for more information on the Group’s borrowings, see note 21. Comments for the year The average interest duration was 15 months and the average inter- The operational transaction exposure is measured as an estimate of est rate of the Parent Company’s borrowings was 0.75% (0.73). the net foreign exchange flows per currency. Estimates are based on A shift upwards in interest rates of 1 percentage point would affect the Group’s intercompany payments and on payments flows from the Group’s borrowings and impact the Group’s net interest by customers and to suppliers in the most significant currencies. The approximately -58 (-50) and a similar downwards shift would impact net amounts are shown in the graph below, corresponding to 10 113 the Group’s net interest by approximately +24 (+29). (11 591). The Group has continued to manage transaction exposures pri- Currency risk marily by matching in- and outflows in the same currencies. A part of the transaction exposure in AUD and USD was hedged with FX The Group operates in various geographical markets and undertakes forward contracts following decision by the FRMC, all matured during transactions denominated in foreign currencies and is consequently 2020. exposed to exchange rate fluctuations. Currency exposure occurs in connection with payments in foreign currency (transaction exposure)

118 Epiroc Annual and Sustainability Report 2020 GROUP NOTES 28. Financial risk management, cont. Estimated operational transaction exposure in the Credit risk Group’s most important currencies, 2020 and 2019 Credit risk can be divided into operational and financial credit risk. These risks are described further in the following sections. The table shows the total credit risk exposure related to assets classified as financial instruments as per December 31, 2020.

Credit risk

2020 2019 Loans and receivables – trade receivables 6 045 7 287 – finance lease receivables 377 515 – other financial receivables 1 025 1 335 – other receivables 790 972 – accrued income 47 46 – cash and cash equivalents 15 053 8 540 Derivatives 167 101 Total 23 505 18 796 2019 2020 Trade receivables, both current and non-current Cash flow hedges 2020 2019 Gross value Gross Impaired Gross Impaired 2020 2019 Nominal Nominal Not past due 4 309 57 5 225 3 amount Fair value amount Fair value Past due but not individually impaired AUD – – -20 MAUD 0 MSEK 0-30 days 987 0 1 192 1 USD – – -32 MUSD -8 MSEK 31-60 days 341 0 337 0 61-90 days 190 1 195 1 The table below shows the effect on pretax earnings that one-sided More than 90 days 651 48 685 25 fluctuations in each currency may have. Past due and individually impaired 1) Transaction exposure sensitivity 0-30 days 18 1 6 0 2020 2019 31-60 days 4 0 3 1 61-90 days 3 2 2 1 AUD Currency rate +/–1% 23 22 More than 90 days 77 80 79 79 USD Currency rate +/–1% 14 27 Collective impaired 16 362 – 326 SEK Currency rate +/–1% 101 116 Total 6 596 551 7 724 437 1 ) The indication is based on the assumptions that no hedging transactions have been undertaken, and before any impact of offsetting price adjustments or similar measures. Operational credit risk Operational credit risk is the risk that the Group’s customers do not The financial transaction exposure in the Group, i.e. internal and exter- meet their payment obligations. nal borrowing or lending in foreign currencies, is centrally managed by Group Treasury. Group Treasury hedges the financial transaction Policy exposure either by FX forwards or by matching in- and outflows in the According to the Group’s operational credit risk policy, divisions and same currencies. individual business units are responsible for the commercial risks arising from their operations. The operational credit risk is measured Translation exposure as the net aggregate value of receivables on a customer. Currency exposure occurs when translating the results of foreign sub- Since the Group’s sales are distributed among many customers, sidiaries into SEK, which affects the Group’s earnings when exchange of whom no single customer represents a significant share of the rates fluctuates (income statement). The translation exposure on the Group’s commercial risk, the monitoring of commercial credit risks balance sheet occurs when translating net assets of foreign subsidiar- is primarily done at the divisional or business unit level. Each entity ies into SEK, which affects other comprehensive income (OCI). is required to have an approved commercial risk policy. These shall aim at preserving the high credit quality of the Group’s portfolios and Policy thereby protecting the Group’s short and long-term viability. Risk The Group’s general policy for managing translation exposure is that is always assessed based on all available information; taking into the translation exposure should be reduced by matching assets and account collateral, credit characteristics and overall market condi- liabilities in the same currencies. The FRMC may decide to hedge tions. When making commercial credit risk decision, risk will always part or all of the remaining translation exposure and any hedging shall be judged based on the combined risks rather than by each of the qualify for hedge accounting in accordance with IFRS. several risk factors evaluated. The entity establish provisions for their estimate of expected credit Comments for the year losses (ECL) in respect of financial assets. The measurement of ECL The translation exposure is measured as the net of assets and liabili- is based on different measures for different credit risk exposures. For ties in a certain currency. As per year-end the Group has not hedged trade receivables and contract assets, the measure for ECL is based any of its translation exposure. on expected loss rate based on historical default statistics, with for- A change up or down by 1% in the value of each currency against ward looking analysis separately considered. Provision is calculated the Swedish krona would affect the Group’s pretax earnings by for all receivables grouped and the expected loss rate is applied. In approximately +/- 13 (18). addition, the Group perform an assessment on individual basis to ensure that adequate loss allowance is made for receivables with observable evidence of higher credit risk with specific factors such as signs of bankruptcy, officially known insolvency etc.

Epiroc Annual and Sustainability Report 2020 119 GROUP NOTES 28. Financial risk management, cont. Lease receivables are impaired by using a rating model when Outstanding derivative instruments, fair value determined the expected credit loss. The rating model is consid- 2020 2019 ering the customer’s rating, the country’s political and commercial risk and a rating of the country’s legal system. Both external credit Interest rate swaps agencies rating and internally developed rating methods are applied. Assets – 2 The measurement of ECL consider the fair value of the collaterals Liabilities – – and the delay. The assessment also take into account the degree of Foreign exchange forwards insurance. Assets 167 99 Forward looking analysis, including macroeconomics factors Liabilities 56 74 impacting different customer segments and geographical areas, are separately considered in both models described above (if not reflected in the rating model) and impairment level is adjusted to No financial assets or liabilities are offset in the balance sheet. Deriv- reflect identified changes for the specific market, if needed. ative instruments are subject to master netting agreements and the fair value of derivatives that are not offset in the balance sheet are 167 Comments for the year (101) for assets and 56 (74) for liabilities. The table below shows deriv- Trade receivables relate to a large number of customers, spread atives covered by master netting agreements. across diverse geographical areas and reflects the spread of sales. Stringent credit policies are applied and there is no major concen- Outstanding net position for derivative instruments tration of credit risk, the Group therefore evaluates the credit risk to Offset in Net in Master be limited. At year-end 2020, trade receivables of 6 045 (7 287) are Balance Balance netting Net reported net of impairment amounting to 551 (437). The expected 2020 Gross sheet sheet agreement CSA position credit loss amounted to 8.4% (5.7) of gross total customer receivables. Assets For further information, see note 17. Derivatives 167 – 167 -56 -51 60 Liabilities The Group has an in-house customer finance operation (part of Epiroc Derivatives 56 – 56 -56 0 0 Financial Solutions) as a means of supporting equipment sales. Credit risk in customer financing are typically mitigated by Epiroc Financial Solutions maintains collateral for its credit portfolio primary through Other market and price risks repossession rights in equipment. Entities may also partly transfer the Commodity-price risk is the risk that the cost of direct and indirect commercial risk through insurance to external entities (normally to materials could increase as underlying commodity prices rise in an export credit agency). At December 31, 2020, the credit portfolio global markets. The Group is directly and indirectly exposed to raw of the customer financial operations totaled approximately to 1 307 material price fluctuations. Cost increases for raw materials and com- (1 766) consisting of 16 (42) reported as trade receivables, 378 (515) ponents frequently coincide with strong end-customer demand and reported as finance lease receivables, and 913 (1 209) reported as are offset by increased sales to mining customers and compensated other financial receivables. In addition, Epiroc Financial Solutions for by increased market prices. Therefore, the Group does not hedge also has non-cancelable operating lease contracts of 423 (562). commodity-price risks. Residual value risk on operating lease contracts is managed through monitoring of equipment with support from customer centers. The Fair value of financial instruments customer centers perform a continuous assessment of the value of In the Group’s balance sheet, financial instruments are carried at the underlying asset. There were no significant concentrations of fair value or at amortized cost. The fair value is established accord- customer risks in these operations. No customer represented more ing to a fair value hierarchy. The hierarchy levels should reflect the than 5% (5) of the total outstanding receivables. The Corona crisis has extent to which fair value is based on observable market data or own not significantly affected the credit risk. For further information, see assumptions. note 15 and 22. • Level 1: Quoted (unadjusted) prices in active markets for identical Financial credit risk assets or liabilities. • Level 2: Inputs other than quoted prices included in level 1 that are Credit risk on financial transactions is the risk that the Group incurs observable for assets or liabilities either directly or indirectly, for losses as a result of non-payment by counterparts related to the example market interest rates or yield curves. Group’s investments, bank deposits or derivative transactions. The • Level 3: Based on a valuation model, whereby significant input is financial credit risk is measured differently depending on transaction based on unobservable market data. type. Valuation methods Policy • Forward exchange contracts: Fair value is calculated based on pre- The Group’s policy states that diversification of credit risk should be vailing market rates and present value of future cash flows. the norm and that maximum exposure limits shall be assigned for • Interest rate swaps: Fair value is based on market rates and present each financial counterpart (with a maximum of 3 000 per counter- value of future cash flows. part). Derivative transactions can only be undertaken with counter- • Interest-bearing liabilities: Fair values are calculated based on mar- parts for which CSA (Credit Support Annex) agreements are estab- ket rates and present value of future cash flows. lished. Furthermore, financial transactions are only to be entered into • Finance leases and other financial receivables: Fair values are cal- with counterparts that have a certain rating (not below A3/A/A ). An culated based on market rates and present value of future cash investment policy stipulating the framework for investments of the flows. Group’s excess cash shall consider the above points. The policy’s demand of security shall always be prioritized over the aim of maxi- The Group’s financial instruments by level mum return. The fair value of bonds are based on level 1 and the fair values of other financial instruments are based on level 2 in the fair value hier- Comments for the year archy. Compared to 2019, no transfers have been made between When measuring credit risk on cash and cash equivalents, the Group different levels in the fair value hierarchy and no significant changes applies the general approach on impairment. The maturities are have been made to valuation techniques, inputs or assumptions. well below 12 months and the counterparties are stable banks with The carrying value for the Group’s financial instruments corre- high rating. Calculations based on the banks’ probabilities of default, sponds to fair value in all categories except for borrowings. See note gives an expected loss which is in all aspects immaterial. At year-end 21 for additional information about the Group’s borrowings. 2020, the measured credit risk on derivatives, taking into account the mark-to-market value and collaterals, amounted to 60 (44). The table below presents the reported value of the Group´s derivatives.

120 Epiroc Annual and Sustainability Report 2020 GROUP NOTES 28. Financial risk management, cont. Currency rates used in the financial statements

Year-end rate Average rate

Value Code 2020 2019 2020 2019 Australia 1 AUD 6.27 6.51 6.34 6.56 Canada 1 CAD 6.40 7.12 6.84 7.10 China 1 CNY 1.25 1.33 1.33 1.37 EU 1 EUR 10.04 10.43 10.48 10.56 Chile 1 000 CLP 11.46 12.46 11.63 13.31 South Africa 1 ZAR 0.56 0.67 0.56 0.65 USA 1 USD 8.19 9.31 9.18 9.42

29. Related parties

Related parties transactions management personnel can be found in note 5 and in the Corporate Related parties are defined as the subsidiaries in the Epiroc Group and governance report. All intra-group transactions take place on general companies over which related physical persons have a controlling, and commercial terms and at market price. joint controlling or significant influence. Related parties also includes transactions with associated companies and joint ventures. Related Transactions with associated companies and joint ventures persons include board members senior executives and close family The Group sold various products and purchased goods through members of the above. certain associated companies and joint ventures on terms generally similar to those prevailing with unrelated parties. No board member, senior officer or shareholder has: (i) been a party to a transaction with the Company on unusual terms The following table summarizes the Group’s related party transac- or that was of an unusual nature, or tions with its associates and joint ventures. (ii) that is of importance, or has been of importance, for the operations as a whole in the present or immediately preceding financial year, 2020 2019 or in any previous financial year, and in any way may be considered Revenues 11 9 outstanding in any way or incomplete. Goods purchased 114 109 Service purchased 0 0 Information about participation in Group companies can be found in note A19. The Group has transactions with related parties reported in note 4 where intercompany revenues account for a minor part of total At Dec, 31: revenues as presented in the note. The parent company’s revenue of Receivables 9 13 183 (163) mainly entail allocation of centrally incurred administration Payables 10 18 costs. Information about remunerations and other benefits to key

30. Events after the reporting period

In December 22, Epiroc, has agreed to acquire MineRP, a software company specializing in increasing productivity for mines through integrated planning, execution and analytics. The acquisition is expected to be completed, after regulatory approvals, in the first half of 2021.

Epiroc Annual and Sustainability Report 2020 121 PARENT COMPANY FINANCIAL INFORMATION Parent Company financial information

Income statement

January - December MSEK Note 2020 2019 Administrative expenses A2 -210 -258 Marketing expenses -16 -18 Other operating income A3 183 163 Other operating expenses A3 -67 -54 Operating profit -110 -167 Financial income A4 61 45 Financial expenses A4 -78 -58 Profit after financial items -127 -180 Appropriations A5 3 463 3 887 Profit before tax 3 336 3 707 Income tax A6 -702 -772 Profit for the year 2 634 2 935

Statement of comprehensive income

January - December MSEK 2020 2019 Profit for the year 2 634 2 935 Total comprehensive income for the year 2 634 2 935

122 Epiroc Annual and Sustainability Report 2020 PARENT COMPANY FINANCIAL INFORMATION

Balance sheet

MSEK Note Dec. 31, 2020 Dec. 31, 2019 Assets Non-current assets Intangible assets 1 1 Tangible assets 7 8 Financial assets - Deferred tax assets A7 11 13 - Shares in Group companies A8, A18 46 021 45 941 - Other financial assets A9 8 021 6 053 Total non-current assets 54 061 52 016

Current assets Income tax receivables – 33 Other receivables A10 5 239 5 071 Cash and cash equivalents 0 2 Total current assets 5 239 5 106 Total assets 59 300 57 122

Equity and liabilities Equity Share capital 500 500 Legal reserve 3 3 Total restricted equity 503 503

Retained earnings 47 763 47 342 Profit for the year 2 634 2 935 Total non-restricted equity 50 397 50 277 Total equity 50 900 50 780

Provisions Post-employment benefits A12 23 15 Other provisions A13 178 201 Total provisions 201 216

Liabilities Non-current liabilities Borrowings A14 7 987 6 029 Total non-current liabilities 7 987 6 029

Current liabilities Tax liabilities 148 – Other liabilities A15 64 97 Total current liabilities 212 97 Total equity and liabilities 59 300 57 122

Epiroc Annual and Sustainability Report 2020 123 PARENT COMPANY FINANCIAL INFORMATION

Statement of changes in equity

2020

Number of shares Share Legal Retained MSEK outstanding capital reserve earnings Total Equity Opening balance, Jan. 1 1 202 952 024 500 3 50 277 50 780 Total comprehensive income for the year – – – 2 634 2 634 Dividends – – – -2 892 -2 892 Acquisition of series A shares – – – – – Divestment of series A shares 2 972 466 – – 370 370 Share-based payment, equity-settled - expense during the year – – – 26 26 - exercise option – – – -18 -18 Closing balance, Dec. 31 1 205 924 490 500 3 50 397 50 900

2019

Number of shares Share Legal Retained MSEK outstanding capital reserve earnings Total Equity Opening balance, Jan. 1 1 199 746 826 500 3 49 553 50 056 Total comprehensive income for the year – – – 2 935 2 935 Dividends – – – -2 523 -2 523 Acquisition of series A shares -1 500 000 – – -134 -134 Divestment of series A shares 4 705 198 – – 474 474 Share-based payment, equity-settled - expense during the year – – – 9 9 - exercise option – – – -37 -37 Closing balance, Dec. 31 1 202 952 024 500 3 50 277 50 780

See note A11 for additional information.

124 Epiroc Annual and Sustainability Report 2020 PARENT COMPANY FINANCIAL INFORMATION

Statement of cash flows

January - December MSEK Note 2020 2019 Cash flow from operating activities Operating profit -110 -167 Adjustments for: Depreciation, amortization and impairment 2 2 Capital gain/loss and other non-cash items -90 -153 Operating cash flow surplus/deficit -198 -318

Net financial items received/paid -17 -8 Group contributions received 3 887 4 424 Taxes paid -517 -889 Cash flow before change in working capital 3 155 3 209

Change in: Operating receivables -666 -978 Operating liabilities 39 -44 Change in working capital -627 -1 022 Net cash flow from operating activities 2 528 2 187

Cash flow from investing activities Investments in tangible assets 0 -2 Investments in intangible assets 0 -1 Acquisition of subsidiaries -5 – Repayments/Investments in financial assets -2 000 – Net cash flow from investing activities -2 005 -3

Cash flow from financing activities Dividends paid -2 892 -2 523 Repurchase and divestment of own shares 370 340 Change in interest-bearing liabilities 1 997 – Net cash flow from financing activities -525 -2 183

Net cash flow for the year -2 1

Cash and cash equivalents, Jan. 1 2 1 Net cash flow for the year -2 1 Cash and cash equivalents, Dec. 31 0 2

Epiroc Annual and Sustainability Report 2020 125 PARENT COMPANY NOTES

A1. Significant accounting policies

Epiroc AB is the ultimate Parent Company of the Epiroc Group and according to the Swedish law regarding pensions,”Tryggandelagen” is headquartered in Nacka, Sweden. The financial statements of and regulations issued by the Swedish Financial Supervisory Board. Epiroc AB have been prepared in accordance with the Swedish The primary differences as compared to IAS 19 are the way discount Annual Accounts Act and the recommendation RFR 2, “Accounting rates are fixed, that the calculation of defined benefit obligations is for Legal Entities”, hereafter referred to as “RFR 2”, issued by the based on current salary levels, without consideration of future salary Swedish Financial Reporting Board. In accordance with RFR 2, parent increases and that all actuarial gains and losses are included in profit companies that issue consolidated financial statements according or loss as they occur. to International Financial Reporting Standards (IFRS), as endorsed by the European Union, shall present their financial statements in accor- Share-based payments dance with IFRS, to the extent these accounting policies comply with The share-based payments that the Parent Company has granted to the Swedish Annual Accounts Act and may use exemptions from IFRS employees in the Parent Company are accounted for using the same provided by RFR 2 due to Swedish accounting or tax legislation. The principle as described in note 1 in the Group’s consolidated financial financial statements are presented in Swedish krona (SEK), which is statements. The share-based payments that the Parent Company the accounting currency for Epiroc AB and also the presentation cur- has granted to employees in subsidiaries are not accounted for as an rency. Unless otherwise stated, the amounts presented are in millions employee expense in the Parent Company, but are recognized as an Swedish krona (MSEK). increase in Shares in Group companies. This vesting cost is accrued The Parent Company’s accounting policies have been consistently over the same period as in the Group and with a corresponding applied to all periods presented unless otherwise stated. The finan- increase in equity for equity-settled programs and as a change in lia- cial statements are prepared using the same accounting policies as bilities for cash-settled programs. described in note 1 in the Group’s consolidated financial statements, except for those disclosed in the following sections. For information Financial guarantees regarding accounting estimates and judgments, see page 91. Financial guarantees issued by the Parent Company for the benefit of subsidiaries are not valued at fair value. They are reported as contin- Subsidiaries gent liabilities, unless it becomes probable that the guarantees will Participations in subsidiaries are accounted for by the Parent Com- lead to payments. In such case, provisions will be recorded. pany at historical cost. The carrying amounts of participations in subsidiaries are reviewed for impairment in accordance with IAS Financial instruments 36, Impairment of Assets. See the Group’s accounting policies, The Parent Company applies the exemption rule for IFRS 9 “Financial Impairment of financial assets, for further details. Transaction costs instruments”, in accordance with RFR 2, which means that all financial incurred in connection with a business combination are accounted instruments are reported in accordance with a method based on for by the Parent Company as part of the acquisition costs and are not cost, in accordance with the Swedish Annual Accounts Act. Except expensed. for impairment of financial assets where the policies for expected credit losses is applied. The Parent Company does not apply hedge Lease contracts accounting. The Parent Company recognizes leases in accordance with the exemption rule for IFRS 16 provided in RFR 2, which results in no Group and shareholders’ contributions change compared to previous year (2019). All lease contracts entered In Sweden, group contributions are deductible for tax purposes but into by the Parent Company are accounted for as operating leases. shareholders’ contributions are not. Group contributions are recognized as appropriations in the income statement. Shareholders’ con- Employee benefits tributions are recognized as an increase of shares in group companies Defined benefit plans and tested for impairment. Defined benefit plans are not accounted for in accordance with IAS 19. In the Parent Company defined benefit plans are accounted for

A2. Employees and personnel expenses and remunerations to auditors

Average number of employees

2020 2019 Women Men Total Women Men Total Sweden 22 19 41 24 20 44

Women in Epiroc Board of Directors and Group Management, %

Dec. 31, 2020 Dec. 31, 2019 Board of Directors excl. union representatives 44 38 Group Management 17 17

Remuneration and other benefits

2020 2019 1) Board members and Board members and Group Management 2) Other employees Group Management 2) Other employees Sweden 51 22 65 35 of which variable compensation 3 ) 4 6

1) Recognized costs for share-based payments not included 2019. 2) Includes 8 (7) board members who receive fees from Epiroc AB as well as the President and CEO and 5 (5) members of the Group Management who are employed by and receive salary from the Parent Company. 3) Refers to variable compensation earned in 2020 to be paid in 2021.

126 Epiroc Annual and Sustainability Report 2020 PARENT COMPANY NOTES A2. Employees and personnel expenses and remunerations to auditors, cont. For information regarding remuneration and other fees for members A4. Financial income of the Board, the President and CEO, and other members of the Group Management, see note 5, of the consolidated financial statements. and expenses

Pension benefits and other social costs 2020 2019 2020 2019 Assets measured at amortized cost Contractual pension benefits for Board Interest income Members and Group Management 8 9 – receivables from Group companies 61 45 Contractual pension benefits – other 0 - for other employees 9 5 Other social costs 29 33 Interest income at effective interest method 61 45 Total 46 47

Net foreign exchange gain 0 - Remunerations to auditors Financial income 61 45 2020 2019 Deloitte Liabilities measured at amortized cost – audit fees 3 3 Interest expenses – audit activities other than audit assignment 1 1 – borrowings -78 -58 – other services 0 0 – liabilities to Group companies 0 0 – other 0 0 Total 4 4 Interest expenses at effective interest method -78 -58 Audit fees refers to audit of the financial statements and accounting records. For the Parent Company the audit also includes the adminis- Financial expenses -78 -58 tration of the business by the Board of Directors, the President and CEO. Audit activities other than the audit assignment refer for example Financial expenses, net -17 -13 to comfort letters and the limited assurance report on Epiroc´s Sus- tainability report. Other services essentially comprise consultancy services. At the Annual General Meeting 2020, Deloitte was elected as auditors for A5. Appropriations the Group until the Annual General Meeting 2021.

2020 2019 Group contributions paid -17 -91 Group contributions received 3 480 3 978 Total 3 463 3 887 A3. Other operating income and expenses A6. Income tax

Other operating income 2020 2019

2020 2019 Current tax -700 -781 Deferred tax -2 9 Management fees 1 ) 183 162 Exchange rate differences, net – 0 Total -702 -772 Other operating income – 1 Total 183 163 2020 2019 Profit before tax 3 336 3 707 Other operating expenses The Swedish corporate tax rate, % 21,4 21.4 National tax based on profit before taxes -714 -793 2020 2019 Management fees 2 ) -55 -60 Tax effect of: Exchange rate differences, net -4 – Non-deductible expenses -7 -7 Other operating expenses 3 ) -8 6 Tax-exempt income 20 25 Total -67 -54 Adjustments from prior years -1 3 Change in tax rate, deferred tax 0 0 1) Income related to services for common group functions placed in Parent Total -702 -772 Company. 2) Expenses related to services for common group functions placed in Effective tax in % 21.0 20.8 Epiroc Rock Drills AB. 3) Other operating expenses refer to one time costs due to the split of Atlas Copco Group.

Epiroc Annual and Sustainability Report 2020 127 PARENT COMPANY NOTES

A7. Deferred tax assets and liabilities

The deferred tax assets and liabilities recognized in the balance sheet are attributable to the following:

Deferred tax assets and liabilities

2020 2019 Net Net Assets Liabilities balance Assets Liabilities balance Post-employment benefits 7 – 7 9 – 9 Other provisions 4 – 4 4 – 4 Net deferred tax assets/liabilities 11 – 11 13 – 13

2020 2019 Net balance, Jan. 1 13 4 Charges to profit for the year -2 9 Net balance, Dec. 31 11 13

A8. Shares in Group companies A10. Other receivables

2020 2019 2020 2019 Accumulated cost Receivables from Group companies 5 209 5 046 Opening balance, Jan. 1 45 941 45 776 Other receivables 2 0 Shareholder contributions 80 165 Prepaid expenses and accrued income 28 25 Closing balance, Dec. 31 46 021 45 941 Closing balance, Dec. 31 5 239 5 071

For further information about Group companies, see note A18 and A19.

A9. Other financial assets A11. Equity

2020 2019 For information on share transactions and mandates approved by the Annual General Meeting and proposed dividend for 2020, see note Receivables from Group companies 8 004 6 042 20 in the consolidated financial statements. Endowment insurances 17 11 The Parent Company’s equity includes legal reserve which is a part Closing balance, Dec. 31 8 021 6 053 of the restricted equity and is not available for distribution.

Endowment insurances relate to defined contribution pension plans and are pledged to the pension beneficiary (see notes A12 and A17).

128 Epiroc Annual and Sustainability Report 2020 PARENT COMPANY NOTES

A12. Post-employment benefits

2020 2019 Defined Defined contribution Defined benefit contribution Defined benefit pension plan pension plan Total pension plan pension plan Total Opening balance, Jan. 1 11 4 15 4 2 6 Provision made 6 2 8 7 2 9 Closing balance, Dec. 31 17 6 23 11 4 15

The Parent Company has endowment insurances of 17 (11) relating to Description of defined benefit pension plans defined contribution pension plans. The insurances are recognized as The Parent Company has one defined benefit pension plan. The ITP other financial assets, and pledged to the pension beneficiary. plan is a final salary pension plan covering the salaried employees in Epiroc AB which benefits are secured through the Epiroc pension trust.

2020 2019 Funded Unfunded Funded Unfunded pension pension Total pension pension Total Defined benefit obligations – 6 6 – 4 4 Fair value of plan assets – – – – – – Present value of net obligations – 6 6 – 4 4 Not recognized surplus – 0 0 – 0 0 Net amount recognized in balance sheet – 6 6 – 4 4

Reconcilliations of defined benefit obligations

2020 2019 Funded Unfunded Funded Unfunded pension pension Total pension pension Total Defined benefit obligations at Jan. 1 – 4 4 – 2 2 Service cost – 2 2 – 2 2 Interest expenses – 0 0 – 0 0 Defined benefit obligations at Dec. 31 – 6 6 – 4 4

Pension commitments provided for in the balance sheet

2020 2019 Costs excluding interest 2 2 Total 2 2

Pension commitments provided for through insurance contracts Service cost 7 7 Total 7 7

Net cost for pensions, excluding taxes 9 9

Special employer’s contribution 4 4 Total 13 13

Epiroc Annual and Sustainability Report 2020 129 PARENT COMPANY NOTES

A13. Other provisions

2020 2019 Opening balance, Jan. 1 201 161 During the year – provisions made 78 189 – provisions used -101 -149 Closing balance, Dec. 31 178 201

Other provisions include primarily provisions for costs related to employee option programs accounted for in accordance with IFRS 2 and UFR 7.

A14. Borrowings

2020 2019 Carrying Carrying Maturity amount Fair Value amount Fair Value Non-current Medium Term Note Program MSEK 1 250, Fixed 2023 1 246 1 307 1 245 1 311 Medium Term Note Program MSEK 750, Floating 2023 749 773 749 771 Medium Term Note Program MSEK 1 000, Fixed 2026 996 1 035 - - Medium Term Note Program MSEK 1 000, Floating 2026 998 1 048 - - Bilateral borrowings MEUR 100, Floating 2022 1 004 1 015 1 043 1 058 Bilateral borrowings MSEK 2 000, Floating 2025 1 996 2 030 1 994 2 006 Bilateral borrowings MSEK 1 000, Floating 2027 998 1 057 998 1 042 Total non-current borrowings 7 987 8 265 6 029 6 188

Closing balance, Dec. 31 7 987 8 265 6 029 6 188 Whereof external borrowings 7 987 8 265 6 029 6 188

The difference between carrying value and fair value relates to the cost and not at fair value. Changes in interest rates and credit margins measurement method as certain liabilities are reported at amortized create the difference between fair value and amortized cost.

A15. Other liabilities

2020 2019 Accounts payable 7 5 Liabilities to Group companies 4 3 Other financial liabilities 5 15 Accrued expenses and prepaid income 48 74 Closing balance, Dec. 31 64 97

Accrued expenses include items such as social costs, vacation pay liability and accrued interest.

A16. Financial risk management

Financial credit risk

2020 2019 Cash and cash equivalents 0 2 Receivables from Group companies, current 5 209 5 046 Receivables from Group companies, long-term 8 004 6 042 Total 13 213 11 090

Financial credit risk Credit risk on financial transactions is the risk that the Parent Com- impairment according to the expected credit loss model. During pany incurs losses as a result of nonpayment by counterparts related 2020 the impairment was insignificant and therefore not recognized. to the Parent Company’s investments and bank deposits. Cash, cash The table above shows the actual exposure of financial instruments equivalents and receivables from Group companies are subject to as per December 31.

130 Epiroc Annual and Sustainability Report 2020 PARENT COMPANY NOTES

A17. Assets pledged and contingent liabilities

2020 2019 Assets pledged for pension commitments Endowment insurances 17 11 Total assets pledged for pension commitments 17 11

Contingent liabilities Sureties and other contingent liabilities – for external parties 0 0 – for Group companies 117 92 Total contingent liabilities 117 92 Total 134 103

Sureties and other contingent liabilities include commercial and financial bank guarantees and parent company guarantees.

A18. Directly owned subsidiaries

2020 2019 Number Percent Carrying Number Percent Carrying of shares held (%) value of shares held (%) value Epiroc Rock Drills AB, 5560779018, Örebro 1 026 897 100 46 016 1 026 897 100 45 941 Certus Insurance Inc, 371238, Burlington, VT 100 000 100 5 - - - Carrying amount, Dec. 31 46 021 45 941

A19. Related parties

Relationships The Parent Company has related party relationships with its largest The following table summarizes the Parent Company’s transactions shareholders, its subsidiaries, its associates, its joint ventures and with with Group companies: its board members and Group Management. The Parent Company’s largest shareholder, Investor AB, controls approximately 23% of the 2020 2019 voting rights in Epiroc AB. The subsidiaries that are directly owned by Revenues the Parent Company are presented in note A18 and all directly and Group contribution 3 480 3 978 indirectly owned operating subsidiaries are listed on the following Interest income 61 45 pages. Information about board members and Group Management is presented on pages 68-71. Expenses Group contribution -17 -91 Transactions and outstanding balances Interest expenses 0 0 The Group has not had any transactions with Investor AB during the year and has no outstanding balances with Investor AB. Investor AB Receivables 5 209 5 046 has controlling or significant influence in companies which Epiroc Liabilities 4 3 AB may have transactions with in the normal course of business. Any Guarantees 117 92 such transactions are made on commercial terms.

The following details directly and indirectly owned holding and operational subsidiaries (excluding branches), presented by country of incorporation:

Country Company Location (City) Country Company Location (City) Argentina Epiroc Argentina S.A.C.I Buenos Aires Bolivia Epiroc Bolivia Equipos La Paz Armenia Epiroc Armenia LLC Yerevan y Servicios S.A. Australia Epiroc Australia Pty Ltd Blacktown Bosnia and Epiroc B-H d.o.o. Sarajevo Herzegovina Epiroc Financial Solutions Blacktown Australia Pty Ltd Botswana Epiroc Botswana (Pty) Ltd Gaborone Epiroc ProReman Pty Ltd Blacktown Brazil Epiroc Brasil Comercializacao Sao Paulo De Produtos E Servicos Para Epiroc South Pacific Blacktown Mineracao E Construcao Ltda Holdings Pty Ltd Bulgaria Epiroc Bulgaria EOOD Sofia Fordia South East Asia Pty Ltd Geebung Burkina Faso Epiroc Burkina Faso SARL Ouagadougou Austria Epiroc Österreich GmbH Vienna

Epiroc Annual and Sustainability Report 2020 131 PARENT COMPANY NOTES A19. Related parties, cont.

Country Company Location (City) Country Company Location (City) Canada Epiroc Canada Holding Inc. Toronto Panama Epiroc Central América S.A. Panama Epiroc Canada Inc. Toronto Peru Epiroc Perú S.A. Lima Fordia Group Inc. Montreal Fordia Andina S.A.C. Lima Chile Epiroc Chile S.A.C. Santiago New Concept Mining Peru S.A.C. Lima Epiroc Financial Santiago Philippines Epiroc Philippines Inc. Laguna Solutions Chile Ltda Poland Epiroc Polska Sp. z o.o. Warsaw Fordia Sudamerica Ltd Santiago Portugal Epiroc Portugal Unipessoal Lda Porto Salvo New Concept Mining Chile SpA Santiago Russia Epiroc RUS LLC Moscow China Epiroc (Nanjing) Construction Nanjing Serbia Epiroc Srbija a.d. Belgrade and Mining Equipment Co., Ltd South Africa CHT Beleggings (Pty) Ltd Aeroton Epiroc (Shenyang) Trading Co., Ltd Shenyang Epiroc Holdings South Boksburg Epiroc (Zhangjiakou) Construction Zhangjiakou Africa (Pty) Ltd & Mining Equipment Co., Ltd Epiroc South Africa (Pty) Ltd Boksburg Epiroc Trading Co., Ltd Nanjing Fordia South Africa (Pty) Ltd Alberton GIA (Shanghai) Mining Shanghai Innovative Mining Aeroton Equipment Co., Ltd Products (Pty) Ltd Fordia (Changzhou) Mining Changzhou Keep Investments (Pty) Ltd Aeroton Equipment Co., Ltd New Concept Mining (Pty) Ltd Aeroton Colombia Epiroc Colombia S.A.S Bogota Nicaud Companies 22 (Pty) Ltd Aeroton Fordia Colombia S.A.S La Estrella Retfin 211 (Pty) Ltd Aeroton Croatia Epiroc Croatia d.o.o. Zagreb South Korea Epiroc Korea Co., Ltd Seongnam Czech Republic Epiroc Czech Republic s.r.o. Prague Spain Epiroc Minería e Ingeniería Coslada Democratic Epiroc DRC SARL Lubumbashi Civil España, S.L Repuplic of the Congo Sweden Construction Tools PC AB Kalmar Ecuador Epiroc Ecuador S.A. Guayaquil Epiroc Drilling Tools AB Fagersta Estonia Sautec AS Tallinn Epiroc Financial Solutions AB Nacka Finland Epiroc Finland Oy Ab Vantaa Epiroc Gällersta Gryt 4:9 HB Örebro France Epiroc France S.A.S Cergy Pontoise Epiroc Rock Drills AB Örebro Fordia Europe Sarl Le Perray- Epiroc Sweden AB Norsborg en-Yvelines Epiroc Treasury AB Nacka Germany Anbaufräsen PC GmbH Tiefenort Switzerland Epiroc Meyco AG Studen Construction Tools Essen Tajikistan Epiroc Tajikistan LLC Rogun Distribution GmbH Tanzania Epiroc Tanzania Ltd Dar es Salaam Construction Tools GmbH Essen Thailand Epiroc (Thailand) Ltd Bangna Epiroc Deutschland GmbH Essen Turkey Epiroc Makina AS Istanbul Ghana Secoroc Ghana Ltd Accra Ukraine Epiroc Ukraine LLC Kiev Greece Epiroc Hellas S.A. Athens United Arab Epiroc Middle East FZE Dubai Hong Kong Epiroc Hong Kong Ltd Hongkong Emirates India Epiroc Mining India Ltd Pune United Epiroc UK and Ireland Ltd Hemel Indonesia PT Epiroc Southern Asia Jakarta Kingdom Hempstead Italy Epiroc Italia S.r.l. Milan USA Certus Insurance Inc Burlington, VT Italparts Italia S.r.l. Camporosso Epiroc Drilling Solutions LLC Garland, TX Japan Epiroc Japan KK Kanagawa Epiroc Drilling Tools LLC Fort Loudon, PA Kazakhstan Epiroc Central Asia LLP Astana Epiroc Financial Garland, TX Solutions USA LLC Kenya Epiroc Eastern Africa Ltd Nairobi Epiroc North America Corp Garland, TX Laos Epiroc (Lao) Sole Co. Ltd. Ban Phiavat Epiroc USA LLC Commerce Mali Epiroc Mali SARL Bamako City, CO Mexico Epiroc México, S.A. de C. V. Tlalnepantla Uzbekistan Epiroc Tashkent LLC Tashkent Mongolia Epiroc Mongolia LLC Ulaanbaatar Zambia Epiroc Zambia Ltd Chingola Morocco Epiroc Maroc SARL Casablanca Zimbabwe Epiroc Zimbabwe (Private) Ltd Harare Mozambique Epiroc Moçambique Limitada Maputo Namibia Epiroc Mining (Namibia) (Pty) Ltd Windhoek North Epiroc North Macedonia DOOEL Skopje Macedonia Norway Epiroc Norge AS Langhus

A20. Events after the reporting period

No significant events have occurred after the balance sheet date.

132 Epiroc Annual and Sustainability Report 2020 SIGNATURES OF THE BOARD OF DIRECTORS Signatures of the Board of Directors

The financial statements have been prepared in accordance The administration report for the Group and Parent Company with generally accepted accounting policies in Sweden and provides a true and fair overview of the development of the the consolidated financial statements have been prepared in Group’s and Parent Company’s business activities, financial accordance with International Accounting Standards as pre- position and results of operations as well as the significant risks scribed by the European Parliament and the Regulation (EC) and uncertainties which the Parent Company and its subsid No 1606/2002 dated July 19, 2002 on the application of Inter- iaries are exposed to. national Accounting Standards. The Parent Company financial statements and the consolidated financial statements give a true and fair view of the Parent Company’s and the Group’s financial position and results of operations.

Nacka, March 4, 2021

Ronnie Leten Helena Hedblom Johan Forssell Chairman Board member Board member President and CEO

Anders Ullberg Ulla Litzén Lennart Evrell Board member Board member Board member

Jeane Hull Astrid Skarheim Onsum Sigurd Mareels Board member Board member Board member

Kristina Kanestad Daniel Rundgren Employee representative Employee representative

Our audit report was submitted on March 5, 2021

Deloitte AB

Thomas Strömberg Authorized Public Accountant

Epiroc Annual and Sustainability Report 2020 133 FINANCIAL DEFINITIONS Financial definitions

Alternative performance measures - key figures not defined according to IFRS3)

Description Reason for use

PERFORMANCE MEASURES Gross profit margin Gross profit margin is gross profit as a percentage Gross profit margin measures how much of the Compa- of revenues. ny’s revenues is left after paying the costs of goods sold. Operating margin Operating margin is operating profit as a percentage Operating margin shows the business’ operating result of revenues. in relation to revenues and is a measurement of the profitability in Epiroc’s operational business. EBITDA EBITDA (earnings before interest, taxes, depreciation EBITDA shows the business’ performance, adjusted for and amortization) is the operating profit plus depreci- the effect of depreciation and amortization, in relation ation, impairment and amortization. to sales, which indicate the business’ cash generating ability. Profit margin Profit margin is profit before tax as a percentage Profit margin shows the business’ profit before tax in of revenues. relation to revenues and is a measurement of the profitability in the entire company. Book to bill Book to bill is orders received divided by revenues. Book to bill is an indicator of demand trends. Organic order growth Organic order growth is order growth that excludes Organic order growth provides an understanding of the effects from exchange rate differences, and acquisi- Group’s order development driven by volume, price and tions/divestments product/service mix changes. Organic revenue growth Organic revenue growth is sales growth that excludes Organic revenue growth provides an understanding of effects from exchange rate differences, and acquisi- the Group’s revenue development driven by volume, tions/divestments. price and product/service mix changes. Organic profit growth Organic profit growth is profit growth that excludes Organic profit growth provides an understanding of the effects from exchange rate differences, and acquisi- Group’s profit development driven by volume, price and tions/divestments. product/service mix changes.

CAPITAL MEASURES Capital employed Capital employed turnover ratio is revenues 2 ) divided Capital employed turnover ratio shows how efficiently turnover ratio by the average capital employed.1) Epiroc generates revenues from the capital utilized to run the operations. Net working capital Total of inventories, trade receivables, trade pay- Net working capital measures the company’s liquidity ables, other operating assets and liabilities. and capital efficiency. Capital Capital turnover ratio is revenues 2 ) divided by aver- Capital turnover ratio shows how effectively total assets turnover ratio age total assets.1) are used. Net debt Net debt consists of interest-bearing liabilities and Net debt is a measurement of the financial position. post-employment benefits, adjusted for the fair value of interest rate swaps, less cash and cash equivalents and certain other financial receivables. Net debt/EBITDA ratio Net debt/EBITDA ratio is net debt in relation to Net debt/EBITDA ratio is a measure of financial risk and EBITDA 1 ). puts interest-bearing debt in relation to cash generation. Net debt/equity ratio Net debt/equity ratio is net debt in relation to equity, Net debt/equity ratio indicates the financial risk. including non-controlling interests. Equity/assets ratio Equity/assets ratio is equity including non-controlling Equity/assets ratio is a measure of financial risk, which interests, as a percentage of total assets. shows how much of Epiroc’s total assets that has been financed with equity.

PROFITABILITY RATIOS Return on capital Return on capital employed is operating profit 2 ) as Return on capital employed measures how efficiently employed a percentage of average capital employed.1) Epiroc generates profits from the capital utilized to run the operations. Return on equity Return on equity is net profit 2 ) divided by total Return on equity shows the Company’s ability to gener- equity1). ate return on the investments made by its shareholders.

CASHFLOW PERFORMANCE MEASURES Operating cash flow Operating cash flow is cash flow from operations and Operating cash flow indicates the business’ ability to cash flow from investing activities, excluding company generate sufficient positive cash flow to maintain and acquisitions/divestments, as well as other adjustments. grow operations. Operating cash Operating cash flow per share is operating cash flow Operating cash flow per share shows the operating cash flow per share divided by the number of shares outstanding. flow per share.

1) 2015 and 2016 is calculated as an average of two periods. 2017 and later is calculated as an average of five quarters. 2) Calculated based on the 12 months value. 3) See also description Alternative performance measures, note 1 page 91

134 Epiroc Annual and Sustainability Report 2020 AUDITOR’S REPORT Auditor’s report

To the general meeting of the shareholders of Epiroc AB Recognition of revenue in the appropriate period corporate identity number 556041-2149 The group generates revenues from product and product related offerings of equipment, tools, service and rental to Report on the annual accounts customers in multiple geographies. The time of delivery of the and consolidated accounts different offerings ranges from a specific point in time to over several years, and the sales agreements may include complex Opinions terms such as buy-back commitments, return rights, and a We have audited the annual accounts and consolidated single transaction may contain separate revenue components accounts of Epiroc AB for the financial year January 1 - Decem- such as product delivery, installation and servicing of equip- ber 31, 2020, except for the corporate governance statement ment sold. These complexities, managed by many subsidiar- on pages 64-73. The annual accounts and consolidated ies, require policies and procedures as well as management’s accounts of the company are included on pages 50-63 and judgment to determine the appropriate method and period to 74-133 in this document. properly recognize revenues. In our opinion, the annual accounts have been prepared in In note 1 the group’s revenue recognition policy together accordance with the Annual Accounts Act and present fairly, in with critical accounting estimates and judgments are all material respects, the financial position of the parent com- described, and note 4 provides disclosures of revenues sepa- pany as of December 31, 2020 and its financial performance rated on different product offerings and geographies. and cash flow for the year then ended in accordance with the Annual Accounts Act. The consolidated accounts have been Our audit procedures prepared in accordance with the Annual Accounts Act and Our audit procedures included, but were not limited to: present fairly, in all material respects, the financial position of • assessing the group’s accounting policy for revenue recog- the group as of December 31, 2020 and their financial perfor- nition and its compliance with IFRS, mance and cash flow for the year then ended in accordance • analytical review of revenues disaggregated on different with International Financial Reporting Standards (IFRS), as product offerings and geographies, and adopted by the EU, and the Annual Accounts Act. The statu- • on a sample basis testing of sales transactions for revenue tory administration report is consistent with the other parts of recognition in the appropriate period. the annual accounts and consolidated accounts. We therefore recommend that the general meeting of Valuation of trade receivables shareholders adopts the income statement and balance sheet The group has significant amounts of trade receivables from for the parent company and the group. its sales to customers in more than 150 countries. There is a Our opinions in this report on the annual accounts and con- risk that parts of the receivables will not be paid. The risk may solidated accounts are consistent with the content of the addi- be higher in some geographies due to weaker economic con- tional report that has been submitted to the parent company’s ditions or geopolitical uncertainties. Procedures for collecting audit committee in accordance with the Audit Regulation payments and assessing customers’ ability to pay together (537/2014) Article 11. with appropriate accounting policies to recognize provisions for doubtful receivables are important factors to ensure a fair Basis for Opinions valuation of trade receivables. We conducted our audit in accordance with International In note 1 the group’s accounting policy for recognizing Standards on Auditing (ISA) and generally accepted auditing impairment of trade receivables is described, and notes 17 and standards in Sweden. Our responsibilities under those stan- 28 describe the provisions for bad debts and discloses the dards are further described in the Auditor’s Responsibilities ageing of trade receivables. section. We are independent of the parent company and the group in accordance with professional ethics for accountants Our audit procedures in Sweden and have otherwise fulfilled our ethical responsibili- Our audit procedures included, but were not limited to: ties in accordance with these requirements. This includes that, • assessing the group’s accounting policy for recognizing bad based on the best of our knowledge and belief, no prohibited debt for compliance with IFRS, services referred to in the Audit Regulation (537/2014) Article • evaluating processes and controls for credit assessments 5.1 have been provided to the audited company or, where and approval of credit limits, applicable, its parent company or its controlled companies • on a sample basis confirming trade receivables against within the EU. customer statements alternatively against subsequent cash We believe that the audit evidence we have obtained is receipts, and sufficient and appropriate to provide a basis for our opinions. • evaluating management’s estimates of the provision for doubtful receivables. Key Audit Matters Key audit matters of the audit are those matters that, in our Valuation of inventory professional judgment, were of most significance in our audit The group carries significant inventories of goods and spare of the annual accounts and consolidated accounts of the parts manufactured and held by production companies and current period. These matters were addressed in the context customer centres in many countries. Valuation of inventory of our audit of, and in forming our opinion thereon, the annual requires clear policies and is subject to management’s esti- accounts and consolidated accounts as a whole, but we do mates for determining its cost, judgment about its saleability not provide a separate opinion on these matters. and its net realizable value as well as procedures for safeguarding and keeping track of the inventory.

Epiroc Annual and Sustainability Report 2020 135 AUDITOR’S REPORT

In note 1 the group’s inventory accounting policy and critical a whole are free from material misstatement, whether due to accounting estimates and judgments are described, and note fraud or error, and to issue an auditor’s report that includes our 16 provides disclosures of the group’s inventory obsolescence opinions. Reasonable assurance is a high level of assurance, provisions. but is not a guarantee that an audit conducted in accordance with ISAs and generally accepted auditing standards in Swe- Our audit procedures den will always detect a material misstatement when it exists. Our audit procedures included, but were not limited to: Misstatements can arise from fraud or error and are consid- • assessing the group’s accounting policy and the individual ered material if, individually or in the aggregate, they could entities’ accounting for inventory in compliance with IFRS, reasonably be expected to influence the economic decisions • observations of physical inventory counts, of users taken on the basis of these annual accounts and con- • on a sample basis testing of the valuation of inventory, solidated accounts. • evaluating management’s estimates of the obsolescence As part of an audit in accordance with ISAs, we exercise reserves, and professional judgment and maintain professional scepticism • review of eliminations of intragroup profits in inventory. throughout the audit. We also: • Identify and assess the risks of material misstatement of the Other information than the annual accounts annual accounts and consolidated accounts, whether due to and consolidated accounts fraud or error, design and perform audit procedures respon- The other information consists of the remuneration report sive to those risks, and obtain audit evidence that is suffi- as well as the pages 1-31, 134 and 146-150 in this docu- cient and appropriate to provide a basis for our opinions. The ment, which also contains other information than the annual risk of not detecting a material misstatement resulting from accounts and conslidated accounts. The Board of Directors fraud is higher than for one resulting from error, as fraud may and the Managing Director are responsible for this other infor- involve collusion, forgery, intentional omissions, misrepre- mation. We expect to receive the remuneration report after the sentations, or the override of internal control. date of this audit report. • Obtain an understanding of the company’s internal control Our opinion on the annual accounts and consolidated relevant to our audit in order to design audit procedures that accounts does not cover this other information and we do not are appropriate in the circumstances, but not for the purpose express any form of assurance conclusion regarding this other of expressing an opinion on the effectiveness of the compa- information. ny’s internal control. In connection with our audit of the annual accounts and • Evaluate the appropriateness of accounting policies used consolidated accounts, our responsibility is to read the infor- and the reasonableness of accounting estimates and related mation identified above and consider whether the information disclosures made by the Board of Directors and the Manag- is materially inconsistent with the annual accounts and consol- ing Director. idated accounts. In this procedure we also take into account • Conclude on the appropriateness of the Board of Direc- our knowledge otherwise obtained in the audit and assess tors’ and the Managing Director’s use of the going concern whether the information otherwise appears to be materially basis of accounting in preparing the annual accounts and misstated. consolidated accounts. We also draw a conclusion, based If we, based on the work performed concerning this infor- on the audit evidence obtained, as to whether any material mation, conclude that there is a material misstatement of this uncertainty exists related to events or conditions that may other information, we are required to report that fact. We have cast significant doubt on the company’s and the group’s nothing to report in this regard. ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention Responsibilities of the Board of Directors in our auditor’s report to the related disclosures in the annual and the Managing Director accounts and consolidated accounts or, if such disclosures The Board of Directors and the Managing Director are are inadequate, to modify our opinion about the annual responsible for the preparation of the annual accounts and accounts and consolidated accounts. Our conclusions are consolidated accounts and that they give a fair presentation in based on the audit evidence obtained up to the date of our accordance with the Annual Accounts Act and, concerning the auditor’s report. However, future events or conditions may consolidated accounts, in accordance with IFRS as adopted by cause a company and a group to cease to continue as a the EU. The Board of Directors and the Managing Director are going concern. also responsible for such internal control as they determine is • Evaluate the overall presentation, structure and content of necessary to enable the preparation of annual accounts and the annual accounts and consolidated accounts, including consolidated accounts that are free from material misstate- the disclosures, and whether the annual accounts and con- ment, whether due to fraud or error. solidated accounts represent the underlying transactions In preparing the annual accounts and consolidated and events in a manner that achieves fair presentation. accounts, The Board of Directors and the Managing Director • Obtain sufficient and appropriate audit evidence regarding are responsible for the assessment of the company’s and the the financial information of the entities or business activities group’s ability to continue as a going concern. They disclose, within the group to express an opinion on the consolidated as applicable, matters related to going concern and using the accounts. We are responsible for the direction, supervision going concern basis of accounting. The going concern basis and performance of the group audit. We remain solely of accounting is however not applied if the Board of Directors responsible for our opinions. and the Managing Director intends to liquidate the company, to cease operations, or has no realistic alternative but to do so. We must inform the Board of Directors of, among other mat- The Audit Committee shall, without prejudice to the Board ters, the planned scope and timing of the audit. We must also of Director’s responsibilities and tasks in general, among other inform of significant audit findings during our audit, includ- things oversee the company’s financial reporting process. ing any significant deficiencies in internal control that we identified. Auditor’s responsibility We must also provide the Board of Directors with a state- Our objectives are to obtain reasonable assurance about ment that we have complied with relevant ethical require- whether the annual accounts and consolidated accounts as ments regarding independence, and to communicate with

136 Epiroc Annual and Sustainability Report 2020 AUDITOR’S REPORT them all relationships and other matters that may reasonably • in any other way has acted in contravention of the be thought to bear on our independence, and where applica- Companies Act, the Annual Accounts Act or the Articles of ble, related safeguards. Association. From the matters communicated with the Board of Direc- tors, we determine those matters that were of most signifi- Our objective concerning the audit of the proposed appropri- cance in the audit of the annual accounts and consolidated ations of the company’s profit or loss, and thereby our opinion accounts, including the most important assessed risks for about this, is to assess with reasonable degree of assurance material misstatement, and are therefore the key audit mat- whether the proposal is in accordance with the Companies Act. ters. We describe these matters in the auditor’s report unless Reasonable assurance is a high level of assurance, but is law or regulation precludes disclosure about the matter. not a guarantee that an audit conducted in accordance with generally accepted auditing standards in Sweden will always Report on other legal and detect actions or omissions that can give rise to liability to the regulatory requirements company, or that the proposed appropriations of the company’s profit or loss are not in accordance with the Companies Opinions Act. In addition to our audit of the annual accounts and consoli- As part of an audit in accordance with generally accepted dated accounts, we have also audited the administration of the auditing standards in Sweden, we exercise professional judg- Board of Directors and the Managing Director of Epiroc AB for ment and maintain professional scepticism throughout the the financial year January 1 - December 31, 2020 and the pro- audit. The examination of the administration and the proposed posed appropriations of the company’s profit or loss. appropriations of the company’s profit or loss is based primar- We recommend to the general meeting of shareholders ily on the audit of the accounts. Additional audit procedures that the profit to be appropriated in accordance with the pro- performed are based on our professional judgment with start- posal in the statutory administration report and that the mem- ing point in risk and materiality. This means that we focus the bers of the Board of Directors and the Managing Director be examination on such actions, areas and relationships that are discharged from liability for the financial year. material for the operations and where deviations and violations would have particular importance for the company’s situation. Basis for Opinions We examine and test decisions undertaken, support for deci- We conducted the audit in accordance with generally sions, actions taken and other circumstances that are relevant accepted auditing standards in Sweden. Our responsibilities to our opinion concerning discharge from liability. As a basis under those standards are further described in the Auditor’s for our opinion on the Board of Directors’ proposed appropri- Responsibilities section. We are independent of the parent ations of the company’s profit or loss we examined the Board company and the group in accordance with professional ethics of Directors’ reasoned statement and a selection of supporting for accountants in Sweden and have otherwise fulfilled our evidence in order to be able to assess whether the proposal is ethical responsibilities in accordance with these requirements. in accordance with the Companies Act. We believe that the audit evidence we have obtained is Deloitte AB, was appointed auditor of Epiroc AB by the gen- sufficient and appropriate to provide a basis for our opinions. eral meeting of the shareholders on the May 12, 2020 and has been the company’s auditor since June 17, 2010. Responsibilities of the Board of Directors and the Managing Director The auditor’s examination of the The Board of Directors is responsible for the proposal for corporate governance statement appropriations of the company’s profit or loss. At the proposal The Board of Directors is responsible for that the corporate of a dividend, this includes an assessment of whether the governance statement on pages 64-73 has been prepared in dividend is justifiable considering the requirements which the accordance with the Annual Accounts Act. company’s and the group’s type of operations, size and risks Our examination of the corporate governance statement is place on the size of the parent company’s and the group’s conducted in accordance with FAR’s auditing standard RevU equity, consolidation requirements, liquidity and position in 16 The auditor´s examination of the corporate governance general. statement. This means that our examination of the corporate The Board of Directors is responsible for the company’s governance statement is different and substantially less in organization and the administration of the company’s affairs. scope than an audit conducted in accordance with Interna- This includes among other things continuous assessment of tional Standards on Auditing and generally accepted auditing the company’s and the group’s financial situation and ensur- standards in Sweden. We believe that the examination has ing that the company’s organization is designed so that the provided us with sufficient basis for our opinions. accounting, management of assets and the company’s finan- A corporate governance statement has been prepared. cial affairs otherwise are controlled in a reassuring manner. Disclosures in accordance with chapter 6 section 6 the The Managing Director shall manage the ongoing adminis- second paragraph points 2-6 of the Annual Accounts Act and tration according to the Board of Directors’ guidelines and chapter 7 section 31 the second paragraph the same law are instructions and among other matters take measures that are consistent with the other parts of the annual accounts and necessary to fulfill the company’s accounting in accordance consolidated accounts and are in accordance with the Annual with law and handle the management of assets in a reassuring Accounts Act. manner.

Auditor’s responsibility Stockholm, March 5, 2021 Our objective concerning the audit of the administration, and Deloitte AB thereby our opinion about discharge from liability, is to obtain audit evidence to assess with a reasonable degree of assurance whether any member of the Board of Directors or the Thomas Strömberg Managing Director in any material respect: Authorized Public Accountant • has undertaken any action or been guilty of any omission which can give rise to liability to the company, or

Epiroc Annual and Sustainability Report 2020 137 NOTES ON SUSTAINABILITY PERFORMANCE Notes on sustainability performance

This report serves as our Communication on Progress (COP) and discloses performance in relation to the UN Global Compact’s ten principles. This information is also made available at the above link Notes overview* and on UN Global Compact’s website at www.unglobalcompact. 1. Our approach to reporting org/participation/report/cop. Epiroc reports for the first time to the Sustainability Accounting 2. Stakeholder dialogue and networks Standards Board (SASB) framework against the Industrial Machin- 3. Management approach/integrating sustainability ery & Goods Standards and the report is included in the GRI index. Between 2001 and 2017, sustainability impacts and perfor- 4. Governance policies and guidelines mance were reported in accordance with the Global Reporting 5. We use resources responsibly and efficiently Initiative (GRI) as part of Atlas Copco’s Annual Report. 6. We invest in safety and health Changes to reporting 7. We grow together with passionate people and Significant changes from the previous reporting period are as courageous leaders follows: • Number of high risk countries was expanded to include addi- 8. We live by the highest ethical standards tional human rights and environmental risks, and as a conse- A full view of our sustainability performance, see page 144. quence the number of risk markets increased significantly. This * Additional information can be found on pages 34-49 has an impact on the definition of significant suppliers as well as the definition of significant agents, resellers and distributors.

Target audience The report’s primary target audience are investors and shareholders. We also strive to meet information needs of other stakehold- 1. Our approach to reporting ers such as customers, suppliers, employees and society. Review This is Epiroc´s third sustainability report written in accordance to the The Annual and Sustainability Report has been reviewed and Global Reporting Initiative (GRI) Standards, Core level. approved by Epiroc’s Group Management and the Epiroc Board of Directors. The sustainability information in the 2020 Annual and The scope Sustainability Report has been subject to limited assurance by This sustainability report is part of the Annual and Sustainability Deloitte AB, see the auditors’ report on page 145. Report 2020. The report includes information covering material topics, where Epiroc has significant economic, environmental and Data collection, calculation and reporting social impacts and that have substantial influence over key stake- The Sustainability and Corporate Governance Reports are parts of holder priorities and how these impacts are managed. This report the 2020 Annual and Sustainability Report. Quantified and other also contains information about sustainability topics necessary for disclosures have been verified in accordance with Epiroc’s pro- understanding Epiroc’s development and performance, as well as cedures for internal control. Data collection is integrated into our impacts from our operations. Included are also our indirect impacts reporting consolidation system and collected on a quarterly basis. along the value chain, among suppliers and when products are in When a restatement of data is done, it is either due to a change of use. The process for defining topic boundaries is based on where calculation method or scope. Values are not typically corrected Epiroc has full control over data collection and information quality. retroactively. For operations performed outside of Epiroc’s control, e.g. performed Environmental data covers production units and distribution by customers or business partners, activities are performed in order centers, where responsibility for reporting rests with the SHEQ to be able to measure Epiroc’s indirect impact. Manager/coordinator of each company. Business partner data Epiroc regards sustainability as an integral part of its business. covers production units and distribution centers. Business partner To provide a more complete picture of its business, environmental data related to agents, resellers and distributors also covers cus- and social information have been included in sections throughout tomer centers. Responsibility for reporting business partner data the Annual Report whenever relevant. Also, information is provided rests with the Sourcing or Marketing manager of each company. about material topics, risks, relevant policies, activities and results. Employee data covers all operations, responsibility for reporting The ambition is that these disclosures provide investors and stake- employee data rests with the HR manager of each company. holders with a comprehensive and easily accessible overview of Safety data covers all operations, responsibility for reporting Epiroc’s most important activities. The report covers Epiroc’s oper- employee data rests with the SHEQ manager/coordinator of each ations for the 2020 fiscal year, unless otherwise stated. The entities company. in the scope are companies where Epiroc has operational control, Data is reported at local operating unit level, aggregated to which are those companies that Epiroc AB, as the ultimate parent division and Group level. Data is verified at each level prior to sub- company, indirectly or directly owns. By year-end 2020, the number mitting it to external auditors for verification. of subsidiaries was 104 (103), as well as 4 (4) associated companies. Greenhouse gas emissions is reported in accordance with the The report comprises pages 34-49 and 138-145. A GRI Index is GHG Protocol (ghgprotocol.org) and the International Energy available at www.epirocgroup.com/en/sustainability. Reporting Agency (iea.org). Epiroc follows recommendations from the Swed- also meets requirements of Sweden’s legislation on sustainability ish Network for Transport and Environment (NTM), which informs reporting as per Chapter 6 Section 11 of the Annual Accounts Act. reporting of CO2 emissions from transport. Epiroc is a signatory to the UN Global Compact, a strategic policy initiative for businesses committed to aligning their operations and Disclosure on management approach strategies with ten universally accepted principles in the areas of Sustainability management as per each topic is described in human and labor rights, environment and anti-corruption. greater detail on the following pages as well as pages 34-49.

138 Epiroc Annual and Sustainability Report 2020 NOTES ON SUSTAINABILITY PERFORMANCE

2. Stakeholder dialogue and networks

We define our most important stakeholders as those groups that we aim to create value for, or that Epiroc is dependent on for the long-term health of the company. Epiroc has identified customers, employees, shareholders, business partners and society as key stakeholder groups. As part of normal business operations, Epiroc continually dialogues with stakeholders, addressing a range of Customers topics.

External networks Epiroc is a member—or is represented on the boards—of a range of networks. Here, we learn, contribute to and influence specific agendas material to our business. Networks include, for example: Society Employees

• Swemin • Swedish Leadership for Sustainable Development (SLSD) • International Council of Swedish Industry (NIR) • Responsible Mining Initiative (RMI) • UN Global Compact Network Sweden • EU Battery Alliance Business • EIT RawMaterials Shareholders partners • Committee for European Construction Equipment, Technical Commission • Global Mining Guidelines Group • International Tunneling and Underground Space Associations • EIT Innoenergy • Transparency International

Business Customers Employees Shareholders partners Society

Definition Existing and Current and Current and poten- Suppliers, Governments, potential potential tial shareholders, sub-suppliers, local communities, investors and joint-ventures non-governmental analysts partners, agents, organizations, distributors and industry partners, resellers academia, society

Dialogue Meetings, inter Workplace meet- Investors and ana- Business partners Meetings, stake- form action via customer ings, management lysts’ meetings, evaluations and holder dialogues, centers, joint meetings, internal Capital Market Days, audits, procure- participation in projects, exhibi- councils, employee website, annual and ments, meetings, industry groups, tions, customer surveys, perfor- sustainability report, materiality assess- research projects, surveys, materiality mance review, questionnaires and ment, joint projects, materiality assess- assessment trade unions and surveys, materiality development ment, collaboration other cooper- assessment projects with academia and ation councils, governments, inter- employee engage- action with industry ments, materiality peers assessment

Key topics Product safety, Product safety, Product safety, Product safety, Human rights, diver- of interest safety, life-cycle safety, human rights, safety, human rights, safety, human sity, CO2 emissions perspective and life-cycle perspec- life-cycle perspec- rights, CO2 emis- operations, CO2 circularity, CO2 tive and circularity, tive and circularity, sions products, emissions products, emissions prod- CO2 emissions CO2 emissions diversity, employee business ethics ucts, diversity, operations, CO2 products, CO2 emis- care, leadership, including corrup- crisis management, emissions products, sions operations, crisis management, tion, supply-chain human rights, diversity, employee crisis management, business ethics management, CO2 business ethics care, leadership, business ethics including corrup- emissions transport, incl. corruption, crisis management, including corruption, supply-chain community engage- community engage- business ethics tion, supply-chain management, CO2 ment, taxes, biodi- ment, supply-chain including corrup- management, CO2 emissions transport, versity, waste, water, management tion, supply-chain emissions transport, CO2 emissions oper- life-cycle perspec- management, CO2 water, leadership ations, waste tive and circularity emissions transport, community engagement, waste, water

Epiroc Annual and Sustainability Report 2020 139 NOTES ON SUSTAINABILITY PERFORMANCE

3. Management approach/integrating sustainability

Governance system For all major operating units, we seek triple-certification for ISO Epiroc’s governance system is the foundation of how we work. 9001 for quality management, ISO 14001 for environmental man- Embedded in our management system, the Epiroc Way, our Code agement and OHSAS 18001 and IS0 45001 for health and safety. of Conduct (CoC) forms the basis for what we do and how we should Parent company, all divisions, production units, distribution centers, act in our relationships with one another and with stakeholders. The and customer centers with more than 70 employees are to be triple CoC reflects our commitments to the international standards and certified. Acquired units are normally certified within a two-year guidelines. The Epiroc Board of directors has approved the CoC. All period. employees and managers in Epiroc, as well as business partners, 76% of the major operating units have triple certification in place are expected to adhere to the CoC. by the end of the year. The same measure for each individual cer- Targets and KPIs reflect our materiality assessment. They help tification is 84% for ISO 9001, 76% for ISO 14001 and 76% for OHSAS us keep track of our performance year on year and ensure that we 18001. Some units that have not yet been triple-certified are in the stay competitive, innovative and ethically sound. Our most material process of doing so. Those lacking certification are mainly acqui- topics are informed by stakeholder input and integrated into the sitions still within the recommended two-year compliance time Group’s strategy and planning process to ensure that the Group can framework or represent units that are newly restructured. The lower capture opportunities while reducing risks to business. individual certification rate compared to previous year is explained Our Sustainability Policy guides our work. The policy is applica- by last year’s calculation of required units not certifed as share of ble to all units within the Epiroc Group. Operational responsibility total number of all operational units, compared to this year’s calcu- of each Divisional President, General Manager and Manager in the lation of required units not certified as share of required operational Group includes all sustainability aspects as well as communication units. and implementation of the policy and its spirit. For more information, see pages 34-49. See also the Corporate Sustainability and corporate responsibility issues are anchored Governance Report pages 64-73. at the highest levels of Epiroc, including the Board of Directors. The CEO has ultimate responsibility for delivering on our sustainability Crisis and risk management agenda. Group Management is responsible for formulating and inte- Epiroc’s ability to prevent, detect and manage risks relating to the grating our priority topics, targets and activities. The Vice President business is crucial for effective governance and control. Effectively Corporate Responsibility is responsible for coordinating and driving managing risk helps us both reduce risks and capture business sustainability and corporate responsibility work at Group level, and opportunities. Risk management reflects the decentralized way of reports to the Senior Vice President Corporate Communication, a working within Epiroc. Local companies are responsible for manag- member of Group Management. Sustainability is integrated into ing, monitoring and regularly following up their own risk manage- the daily work within the Group. Epiroc has a Group Safety, Health, ment. Group functions are responsible for legal, insurance, treasury, Environment and Quality (SHEQ) Council to support integration of tax, controlling, accounting, and providing policies, guidelines and safety, health, environment and quality priorities. It includes repre- instructions. Implementation is regularly audited by internal and sentatives from each division and relevant Group functions. Simi- external audits. larly, with respect to responsible sourcing issues, a Sourcing Council For an overview, see the Corporate Governance report pages is in place. Management of material topics are described below and 64-73. For more information on Epiroc’s risk management and pro- pages 34-49. cesses to deal with disruptive and unexpected events that could harm the organization, the environment or our stakeholders, see Epiroc’s management system pages 74-79. The Epiroc Way is our single most important management tool, available to employees via our intranet. It includes policies, guidelines, processes and instructions within all main areas, covering a number of different sustainability and corporate responsibility topics, such as: purchasing, safety, health, the environment, quality, trade compliance, tax, anti-corruption and human rights. This ensures that our management system helps integrate sustainability and corporate responsibility commitments into every aspect of how we conduct business. The management system is certified according to different standards. In addition, local policies, instructions, guidelines, tools and management systems correspond to specific risks. Group Management decides on strategies and sustainability KPIs and three-year targets. The Group Management also follows up and monitors progress. Divisions are responsible for implementation. Divisions are the highest operational units, responsible for delivering results in line with the Group strategies and objectives set for financial and non-financial targets. Each division has global responsibility for its own product range and its management leads and develops the business through its product companies, distribution centers and customer centers. Each division has administrative responsibility for its operational entities, such as customer centers or product companies. Administrative responsibility ensures compliance and understanding of Group procedures as per the Epiroc Way, and all legal requirements. We work with a global certified management system that ensures that our operations review and address our most material topics, set targets, measure performance, follow-up on progress and continuously improved performance. Certification programs also require documented delegation of responsibilities at each site and that relevant competences are in place. We apply the following standards:

• ISO 14001:2015 (Environment) • OHSAS 18001:2007 (Occupational health and safety) • ISO 9001:2015 (Quality management)

140 Epiroc Annual and Sustainability Report 2020 NOTES ON SUSTAINABILITY PERFORMANCE

4. Governance policies 5. We use resources responsibly and guidelines and efficiently

Environmental performance Epiroc is a signatory of: Epiroc has integrated its most material environmental KPIs into its • UN Global Compact (UNGC) planning process. The KPIs help monitor and drive improvements and efficiency so that the Group can reduce its environmental Epiroc is committed to conducting its business in impact. accordance to: It is mandatory to report incidents or fines for non-compliance • UN Guiding Principles on Business and Human Rights with environmental legislation, as well as incidents involving chem- (UNGP) ical, oil or fuel spillages. There were 10 (4) accidents resulting in • United Nations International Bill of Human Rights adverse environmental effects. All accidents were addressed fully • International Labor Organization Declaration on Fundamen- and with corrective actions. Clean-up costs amounted to KSEK 40 tal Principles and Rights at Work (ILO) (26). • OECD’s Guidelines for Multinational Enterprises • UN Sustainable Development Goals (SDG) Permits in compliance with Swedish environmental regulations • UN Convention against Corruption Three production units require permits as in accordance to Swedish • The Rio Declaration on Environment and Development environmental regulations. Permits relate to areas such as emissions to water and air, as well as noise pollution. None of these per- These commitments are reflected in Group policies, proce- mits were under revision in 2020. dures and public policy work. Environmental management Sustainability policies and guidelines To help minimize environmental impacts and to ensure that the We have internal policies and guidelines that cover ethical, precautionary approach is applied, we have implemented environ- quality, environmental, labor, health and safety issues. mental management systems (ISO 14001:2015) into most of our units through our global triple certification. Some examples: • Sustainability Policy (including Health and Safety, Quality Product responsibility and Environmental issues) All products and services come with relevant product, service and • Speak Up Policy safety information. Information contains instructions for service • Anti-Corruption Policy and safe use of the product. Customer training is included when • Conflict of Interest Policy relevant, to secure the safe handling of products. Any safety issues • Gift and Hospitality Policy arising in the field or from service are tracked through safety • Alcohol and Drug Policy campaigns followed by appropriate actions. 39 (22) incidents for • Purchasing Policy non-compliance with voluntary codes concerning the health and • Guidelines for Diversity safety impacts of products and services were reported for 2020. • Tax Policy Incidents of non-compliance of voluntary codes are situations • Responsible Sales Assessment Policy where a part needs to be replaced or a program modified to • Sponsoring and Community Engagement Policy enhance the safety of the product. Reporting criteria for non- compliance with voluntary codes has been updated in 2020, to include number of safety campaigns.

Conflict minerals Responsible sourcing of the minerals included in our products is important to us. Suppliers of products containing tin, tungsten, tantalum or gold (3TG) are required to identify and declare the origin of such minerals present in the products and components sold to us. This ensures that the minerals do not directly or indirectly finance or benefit the armed groups in the Democratic Republic in Congo, e.g. that the products are conflict free. In 2020, closer to 250 suppliers were requested to declare the origin of 3TG present in their Epiroc Code of Conduct products. The Code of Conduct (CoC) is our guide to doing business Information on the presence and origin of 3TG in Epiroc products ethically and to optimizing social and environmental impacts is consolidated and shared with interested parties. Approximately of our operations and it is approved by the Epiroc Board of 85% of the suppliers of products containing 3TG responded. Approx- directors. Laws, environmental standards and social con- imately 370 (335) smelters of tin, tungsten, tantalum and gold were ditions vary in the countries where we operate. The CoC is identified by our suppliers, none of which finance the armed groups designed to make sure that we always act with the highest in Democratic Republic of Congo. ethical standards and integrity. A revised CoC will be pub- The fact that our products do not contain conflict minerals is lished in 2021. For the complete version of Epiroc CoC, please important not only for Epiroc, but it also supports our customers and see www.epirocgroup.com/eng/sustainability their obligations to report the origins of tin, tungsten, tantalum and gold in a transparent way. Broad industry cooperation is needed to The Compliance Board meet the challenges with conflict minerals. We are members of the A Compliance Board is in place with its mission to safeguard Responsible Minerals Initiative (RMI) and our membership in RMI is that Epiroc’s CoC is implemented and complied to. The Com- a good source of information to keep us updated and prepared for pliance Board guides, supports and follows-up on the pro- new emerging issues. cess. It provides training material as appropriate. Although it is not yet a regulated metal, cobalt is a concern for It consists of the President and CEO, Senior Vice President Epiroc. In 2020, about 40 suppliers of components including the General Counsel (Chair), Senior Vice President Corporate cobalt metal were asked to declare the origin of the cobalt included Communications, Senior Vice President Controlling and in the products to get an understanding of supplier awareness. Finance, Senior Vice President Human Resource, Vice Pres- About 50% of the suppliers asked responded. ident Corporate Responsibility, Vice President Compliance In 2021, we will continue to follow up with our suppliers to ensure and the Head of Internal Control and Assurance. a deeper knowledge and response rate.

Epiroc Annual and Sustainability Report 2020 141 NOTES ON SUSTAINABILITY PERFORMANCE

Hazardous substances in products and processes In Epiroc, workers or workers representatives are participating The Epiroc Prohibited and Declarable Lists, are lists of hazardous in risk analysis and finding solutions to mitigate risks as part of the substances, which are either prohibited or which must be declared requirements in OHSAS 18001. Any employee at any time has the due to their potential negative impact on health or the environment. freedom to come up with suggestion on how to perform tasks in Substances included in the Prohibited List may not be included in a safer way. Safety committees are organized in many places and any products, components or used in processes. Products contain- coordinated locally. Escalation procedures are in place. ing substances included in Epiroc Declarable List must be identified Promotion of workers health is mainly done in the local entities. and communicated to customers to facilitate safe use. Suppliers’ In some locations the employees are allowed to excercise during use of listed substances is regularly checked, and if prohibited sub- working hours. All health promotion services and programs are vol- stances is found, they must immediately be replaced by appropriate untary within Epiroc. alternatives. When declarable substances are present in any product, such information is added into applicable business system to be Prevention and mitigation of occupational health and safety forwarded to customers. Compliance to the Prohibited and Declar- impacts directly linked by business relationships able lists is included in the Epiroc Business Partner Criteria letter Contractors working in the Epiroc environment has the obligation to which is signed by Epiroc suppliers. follow the same procedures and routines as direct employees and Both lists are continuously revised according to applicable legis- they get the same onboarding training and offered the same safety lation, including REACH, RoHS and global conventions. The Lists on equipment. Suppliers are required to follow the Epiroc Code of Con- Prohibited and Declarable Substances are published on the Epiroc duct and Epiroc performs regularly audits at significant suppliers´ website together with Epiroc’s Substance of Concern Policy, which sites to ensure compliance. When working in the field at a customer explains actions required by suppliers and the internal organization site or similar, Epiroc employees are trained to perform their own risk for substances included in either of the lists. assessments, like Last Minute Risk Assessment, and are obliged to follow local regulations and procedures. If they still face a risky situt- aion they are told not put themselves in a hazardous situation. 6. We invest in safety and health 7. We grow together with passionate Geographical spread of injuries among Epiroc’s total workforce people and courageous leaders Number Number of Number of in Epiroc’s work-related work-related workforce LTIs, 2020 MTIs, 2020 Number of employees, December 31, 2020 13 840 North America 2 112 13 30 The average number of training hours per employee 30 South America 1 389 6 4 The average number of training hours among Europe 5 024 25 19 Africa/Middle East 2 384 7 4 - blue-collar employees 35 Asia/Australia 4 298 7 26 - white-collar employees 24 Total 15 207 58 83 Each employee spent an average of 30 (39) hours on training during The majority of injuries reported have been in North America and 2020. The reduction can to some extent be explained due to reduc- Europe (62% of total injuries). However compared to 2019 the tion of classroom trainings because of the Covid-19 pandemic. amount of injuries in North America and Europe has decreased by 27%. Lost-time injuries (LTIs) from operations globally has decreased Employee turnover and new hires 2020 by 29%. There is a continued focus on training and activities to fur- In 2020, voluntary employee turnover was 5.5%. Employee turnover ther reduce the number of injuries. The lost-time injury frequency decreased compared to the 12-months period ending in December rate (LTIFR) for additional workforce has decreased to 0.9 compared 2020 with 27%. 32% of total turnover during 2020 was in Asia/Aus- to 3.7 in 2019. The decrease is to some extent explained by the tralia, 27% in North America, 24% in Europe, 10% in South America reductions in professional categories having higher representative- and 7% in Africa/Middle East. ness of lost-time injuries. Number of new employee hires in 2020 was 1 370. New employee hires decreased in 2020 compared to the 12-months Hazard identification, risk assessment, and incident investigation period ending in December 2019 with 7%. 43% of new hires in 2020 All Epiroc companies have procedures for risk assessments, haz- were represented in Asia/Australia, 19% in Europe, 15% in Africa/ ard identification, incident reporting, and safety inspections. Risk Middle East, 12% in North America and 11% in South America. assessment is a requirement of Epiroc management and OHSAS 18001. Epiroc companies are encouraged to use a reporting tool for Freedom of association and the right to collective bargaining incident reporting, e.g. risk observations, near-misses and injuries. Employees have the right to choose whether they wish to be rep- We promote people to highlight risks and not putting themselves in resented by a trade union or not. In 2020 a total of 44% (45) of our a risky situation. All identified risky situations shall be mitigated or employees where covered by collective bargaining agreements. as a minimum have clear instructions how to be performed in a safe way. Work-related injuries are reported and followed up at the Com- pany level, Divisional level and Group level. Investigations resulting 8. We live by the highest ethical standards in corrective and preventative actions must be deployed after each recordable injury. Some injuries, their descriptions and lessons learned are shared within the company as safety shares. Suppliers’ commitment Occupational health services, worker participation, and promotion 2020 2019 of worker health Significant suppliers, number 1 532 1 406 Occupational health services are provided to employees at most Safety, health, social and environment units and vary from one country to another depending on the spe- audited suppliers, % 3 11 cific needs of the unit, the level of health service available and local Approved suppliers, % 98 95 legislation. In some locations, health services are supported by company doctors and nurses, psychologists, physiotherapists and Conditionally approved ergonomists. In other locations such services are supplied by third suppliers (monitored), % 2 5 parties. Rejected suppliers, % - - Significant suppliers asked for commitment with the Epiroc CoC, number 1 518 1 402 Significant suppliers that confirmed compliance with the Epiroc CoC, % 99 99

142 Epiroc Annual and Sustainability Report 2020 NOTES ON SUSTAINABILITY PERFORMANCE

Agents, resellers and distributors’ commitment No significant fines or non-monetary sanctions related to non-compliance with laws and/or regulations in the social and economic 2020 2019 area have been paid during the year. Significant agents, resellers Speak Up can be used to report all perceived violations of Epiroc and distributors, number 370 329 Code of Conduct, for example, non-compliance with environmental Significant agents, resellers and laws, human and labor rights, and diversity. It is also open for busi- distributors asked for commitment ness partners, including suppliers. with the Epiroc CoC, number 361 323 Significant agents, resellers Implementing the UN Guiding Principles on Business and Human and distributors that confirmed Rights (UNGP) compliance with the Epiroc CoC, % 72 81 The UNGP requires companies to have a human rights due diligence process in place to identify, prevent, mitigate and account for how The scope of significant suppliers includes all suppliers of goods they address human rights impacts. We are committed to address- and services, direct and indirect, with a purchasing value above ing and integrating human rights across our business operations EUR 100 000, based on 12-month values from October 2018 to in accordance with the UNGP. The Compliance Board monitors September 2019. Suppliers are also deemed significant when they the implementation of the CoC, including human rights issues. Our are located in high-risk countries and have a purchasing value commitment and how we conduct human rights due diligence is above EUR 12 500, based on 12-month values from October 2018 to described on pages 48-49. September 2019. For significant agents, distributors and resellers the period is the same but the purchasing values are EUR 200 000 Knowledge about human rights is key to understanding risks respective EUR 50 000 for high risk countries. For the definition of A key priority is to raise the employees’ awareness about human high risk countries, risk indices provided by an external risk indices rights and at the same time create an understanding in the organi- firm are used. The list of high-risk countries has been extended in zation of the different challenges that may need to be addressed 2020 due to a revised risk-assessment. along the value chain – in relation to both suppliers and customers. Epiroc’s significant suppliers during 2020 amounted to 1 532 How to address human rights issues are therefore part of the CoC (1406). Evaluations on their performance and impacts are conducted and the internal CoC-training sessions. One example of the latter by Epiroc teams at the suppliers’ site. In 2020, we performed 123 is the internal training for the sourcing organization on the Busi- (335) audits. Several audits were cancelled as a result of travel ness Partner Ten Criteria Letter and the CoC. This training session restrictions that came with Covid-19. Due to this new situation, per- includes special attention to labor standards, such as working hours, formance of light or self-assessed audits are used as an alternative. modern slavery and forced labor, conflict minerals, non-discrimina- 1 518 (1 402) were requested to commit to the CoC and Business tion and other human rights issues. The e-learning on Responsible Partner Criteria Letter. If a supplier after negotiations refuses to Sales Assessment includes sessions on how Epiroc should imple- accept our CoC, but can show that their own CoC is equivalent to ment the UNGP. It covers different human rights issues and aims to ours, they may be exempted. However, each case is to be closely build a greater awareness of specific human rights challenges. evaluated and decisions are taken based on the specific supplier’s situation. Stakeholder consultation Epiroc’s ability to influence in order to effect change in possible The supplier evaluation process examines: wrongful practices along the value chain, is an important way to • Business partners’ record of governance, ethics and stance take action in accordance with the UNGPs. Therefore, human rights against corruption issues are on the agenda for dialogues with Epiroc´s identified • Labor issues: Rejection of forced, compulsory or child labor, elimi- stakeholders. Feedback from these consultations are implemented nation of discrimination, safeguarding employee health and safety, into operations as a way to build a better understanding, as well as collective bargaining rights assessing and mitigating human rights risks in complex markets. • Environmental performance: Managing waste, minimizing emis- We are fully committed to continuously addressing and monitoring sions, and reducing consumption of natural resources human rights challenges. • Human rights issues: Responsible sourcing and respect for human rights in operations Leverage Leverage is important for the implementation of the UNGPs. It exists In 2020, it was necessary in 0 (0) instances to withdraw from sup- where we can effect change in the wrongful practices of an entity plier agreements due to cases of non-compliance that were not that causes harm (principle 19, UNGPs). We are exploring this aspect adequately addressed. through dialogue with business partners and non-governmental Epiroc’s significant agents, resellers and distributors during 2020 organizations such as the International Council of Swedish Industry amounted to 370 (329). 361 (323) agents, resellers and distributors (NIR), finding examples of how we can better understand and assess were asked to commit to the CoC. human rights risks in complex markets.

Speak Up cases Remediation Both states and companies have roles to play in ensuring that vic- Reported potential violations, number tims of business related human rights abuses have access to effec- 2020 2019 tive remedy. Remedy means taking action to repair any harm done to people. Behavior or actions that are, or for good reasons may Fraud and corruption 10 12 be perceived as, violations of laws or of the Epiroc CoC should be Labor related matters 28 26 reported. The Speak Up line may be used by employees or external Safety 8 1 stakeholders to report concerns. Discrimination 0 1 Harassment 11 2 Management of taxes Conflict of interest 2 0 Epiroc is a global company with a presence in many countries and Other 5 2 through compliance with the Arm’s Length principle, we aim to pay Total 64 44 the fair amount of tax in each country. We strive to be a good and reliable corporate citizen through prudent and sustainable manage- In 2020, in total 64 cases were reported. 13 of these cases are still ment of taxes. under investigation. Out of the total number of cases, 28 concern We also recognize the importance of tax in the area of advancing labor relations and 11 harassment. Four cases during the year were economic development and contributing to society by paying cor- deemed to be material. In three confirmed incidents, employees porate income taxes as well as other taxes, levies and social security were dismissed or disciplined for corruption. No fines related to contributions. Our action is in accordance with IFRS, all applicable non-compliances reported through our Speak Up line have been tax laws and regulations as well as international standards from the paid during the year. There have been no instances of anti-competi- OECD and the UN. The Epiroc Tax Policy is available at (www.epiroc- tive behavior brought to the attention of Epiroc Group management. group.com/en/investors/tax-policy)

Epiroc Annual and Sustainability Report 2020 143 NOTES ON SUSTAINABILITY PERFORMANCE Sustainability performance 1)

Targets Targets Economic value, MSEK Note 2016 2017 2018 2019 2020 2020* 2021* Direct economic value Revenues2) 27 490 31 675 38 500 41 096 36 431 Economic value distributed Operating costs3) 16 145 18 651 23 399 24 326 21 024 Employee wages and benefits, including other social costs 6 583 6 862 7 535 8 454 7 881 Costs for providers of capital 4 ) 731 5 547 365 2 926 3 340 Costs for direct taxes to governments 1 065 1 590 1 921 1 992 1 848 Economic value retained 2 966 –975 5 280 3 398 2 338

We live by the highest ethical standards Managers signed a Code Compliance Commitment, % – – 91 95 99 Managers trained in Epiroc Code of Conduct, % – – 91 95 99 Safety, health, social and environment audited suppliers, % 8 – 10 11 11 3 Significant suppliers that confirmed compliance with the Epiroc Code of Conduct, %5) 8 98 97 98 99 99 100 100 Significant agents, resellers and distributors that confirmed compliance with the Epiroc Code of Conduct, %6) 8 – – 75 81 72 97 95

We invest in safety and health Work-related Lost-time injuries, number 7 ) 6 91 113 99 82 58 Lost-time injury frequency rate (LTIFR) 7 ) 6 3.8 4.3 3.4 2.7 2.0 2.3 1.7 Lost days due to Lost-time injuries, number per one million working hours 7 ) 6 158 93 97 70 55 Work-related Medical treatment injuries, number 7 ) 6 – – 158 102 83 Work-related Medical treatment injuries, number per one million working hours 7 ) 6 – – 5.4 3.3 2.8 Total recordable injury frequency rate (TRIFR) 7 ) 6 – – 8.9 6.0 4.8 5.3 4.0 Fatalities 0 1 0 1 0 0 0 Sick leave due to illness, % 2.1 2.1 2.1 2.1 2.1 Sick leave due to illness and Lost-time injuries, % 2.3 2.2 2.2 2.1 2.1 <2.5 <2.5

We use resources responsibly and efficiently Renewable energy for operations, % of total energy 45 45 49 53 57 Renewable energy for operations incl. renewable of mix, % of total energy 8) 55 55 60 63 64 64 67 Direct energy use in GWh 9) 29 27 30 29 24 Indirect energy use in GWh 9) 124 129 142 132 122 Total energy use in GWh 9) 153 155 172 161 146 Total energy use in MWh/COS 9) 9.3 8.5 7.6 6.8 7.1 6.5 7.1 CO2 emissions ’000 tonnes (direct energy) – scope 1 10) 6 6 6 6 5 CO2 emissions ’000 tonnes (indirect energy) – scope 2 10) 26 28 29 22 22 CO2 emissions ’000 tonnes (total energy) – scope 1+2 10) 32 34 35 28 27 Location-based CO2 emissions ’000 tonnes (indirect energy) scope 2 11) 30 31 33 28 27 10) CO2 emissions ’000 tonnes (transports) – scope 3 92 114 128 105 83 CO2 emissions tonnes (transports)/COS 10) 5.6 6.2 5.6 4.5 4.1 4.4 4.1 Proportion of reused or recycled waste, % 96 97 97 95 94 Water consumption in water risk areas (’000 m3) 12) 76 67 65 55 82 Water consumption in water risk areas (in m3)/COS 12) 4.6 3.7 2.9 2.4 4.0 2.4 4.4

We grow together with passionate people and courageous leaders White-collar employees, % 53 51 51 49 49 Blue-collar employees, % 47 49 49 51 51 Employee turnover white-collar employees, % 7 4.8 5.7 7.4 7.5 5.3 Employee turnover blue-collar employees, % 7 4.3 4.7 7.4 7.3 5.6 Total turnover, voluntary leave % 7 4.6 5.2 7.4 7.4 5.5 Yearly performance and development discussion, % 90 87 88 88 87 Women employees, period end, % 15.1 15.7 16.0 15.5 15.7 17.5 17.7 Women managers, period end, % 20.3 18.2 20.0 19.3 21.0 22.4 23.1 New hires of women into the Group, share of total external recruitments, % 15.9 18.4 17.4 16.2 19.5 Nationalities among senior managers, number – – 30 32 33 Average number of training hours per employee – 35 39 39 30 Leadership Index – – – 69 71 73 73

* Epiroc´s key performance indicators for sustainability

144 Epiroc Annual and Sustainability Report 2020 AUDITOR’S REPORT ON SUSTAINABILITY

Auditor’s Limited Assurance Report on Epiroc AB’s Sustainability Report and statement regarding the Statutory Sustainability Report

This is the translation of the auditor’s report in Swedish. to RevR 12 is different and substantially less in scope than an audit conducted in accordance with International Standards To Epiroc AB, corporate identity number 556041-2149 on Auditing and generally accepted auditing standards in Sweden. Introduction The firm applies ISQC 1 (International Standard on Quality We have been engaged by the Board of Directors of Epiroc Control) and accordingly maintains a comprehensive system AB to undertake a limited assurance engagement of the of quality control including documented policies and pro- Epiroc AB Sustainability Report for the year 2020. The Com- cedures regarding compliance with ethical requirements, pany has defined the scope of the Sustainability Report and professional standards and applicable legal and regulatory the Statutory Sustainability Report on page 138. requirements. We are independent of Epiroc AB in accordance with professional ethics for accountants in Sweden and Responsibilities of the Board of Directors and the Executive have otherwise fulfilled our ethical responsibilities in accor- Management dance with these requirements. The Board of Directors and the Executive Management are The limited assurance procedures performed and the responsible for the preparation of the Sustainability Report examination according to RevR 12 do not enable us to obtain including the Statutory Sustainability Report in accordance assurance that we would become aware of all significant with the applicable criteria and the Annual Accounts Act matters that might be identified in an audit. The conclusion respectively. The criteria are defined on page 136 in the Sus- based on a limited assurance engagement and an examina- tainability Report, and are part of the Sustainability Reporting tion according to RevR 12 does not provide the same level of Guidelines published by GRI (Global Reporting Initiative), assurance as a conclusion based on an audit. which are applicable to the Sustainability Report, as well as Our procedures are based on the criteria defined by the accounting and calculation principles that the Company the Board of Directors and the Executive Management as has developed. This responsibility also includes the internal described above. We consider these criteria suitable for the control relevant to the preparation of a Sustainability Report preparation of the Sustainability Report. that is free from material misstatements, whether due to fraud We believe that the evidence we have obtained is suffi- or error. cient and appropriate to provide a basis for our conclusion below. Responsibilities of the auditor Our responsibility is to express a conclusion on the Sustain- Conclusion ability Report based on the limited assurance procedures Based on the limited assurance procedures we have per- we have performed and to express an opinion regarding the formed, nothing has come to our attention that causes us to Statutory Sustainability Report. Our engagement is limited to believe that the Sustainability Report, is not prepared, in all historical information presented and does therefore not cover material respects, in accordance with the criteria defined by future-oriented information. the Board of Directors and Executive Management. We conducted our limited assurance engagement in accordance with ISAE 3000 Assurance Engagements Other A Statutory Sustainability Report has been prepared. than Audits or Reviews of Historical Financial Information. A limited assurance engagement consists of making inquiries, primarily of persons responsible for the preparation of the Sustainability Report, and applying analytical and other lim- Stockholm March 5, 2021 ited assurance procedures. Our examination regarding the Statutory Sustainability Report has been conducted in accor- Deloitte AB dance with FAR’s accounting standard RevR 12 The auditor’s opinion regarding the Statutory Sustainability Report. A lim- Thomas Strömberg Lennart Nordqvist ited assurance engagement and an examination according Authorized Public Accountant Expert Member of FAR

Footnotes to page 144

1) Calculations according to GRI Standards Guidelines, www.globalreporting.org. 2) Revenues include revenues, other operating income, financial income, profit from divested companies and share of profit in associated companies. 3) Operating costs include cost of sales, marketing expenses, administration expenses, research and development expenses, other operating expenses, deducted for employee wages and benefits. COS when presented in relation to sustainability information refers to cost of sales at standard cost in MSEK. 4) Costs for providers of capital include financial costs and dividend, but exclude redemption of shares and repurchase of own shares. 5) Since 2017, the scope of business partner reporting in the annual report includes distribution centers in addition to the previous scope including only production units. The change in scope does not have a significant impact on the KPI:s compared with previous years. 6) Agents, resellers and distributors data covers customer centers, distribution centers and production units. 7) In 2018, the Safety reporting changed from accidents and incidents to Lost-time injuries and Medical treatment injuries to better be aligned with the rest of the mining industry. Lost-time injury has same definition as previous accidents. Medical treatment injuries replaced incidents with its new definition. Medical treatment does not include first aid treated injuries, which incidents did. Restatement of 2019 number to 3.3 compared to 2.7 in previous year’s annual report. 8) Renewable of mix does not have any certificate or similar statement from the energy provider that assures only renewable energy sources are used for the electricity or district heating provided according to the contract. 9) The total energy includes both indirect and direct energy used. The calculation of indirect energy, i.e. energy purchased externally by the company, includes electricity and district heating used at the sites. The calculation of direct energy, i.e. energy generated by the company for its own production or operation, comprises all fuels used on the sites, including diesel, gasoline, coal, bio-fuel, propane and natural gas. Target for 2021 reflects that extented heat treatment in own operations is planned. 10) Greenhouse gas emission reporting is done in accordance with the GHG Protocol (ghgprotocol.org). Standardized conversion factors published by the Greenhouse Gas Protocol Initiative and International Energy Agency are used to calculate CO2 emissions, see www.ghgprotocol.org and www.iea.org. When emission data is not provided by transport companies, factors from NTM (transportmeasures.org) are used. Target for 2021 reflects that more shipments are planned in 2021. 11) A location-based method reflects the average GHG emissions intensity of grids on which energy consumption occurs, using mostly grid-average emission factor data. A market-based method reflects emissions from electricity that an organization has purposefully chosen (or its lack of choice). 12) Water risk mapping was carried out using the water risk maps generated by a third-party risk analytics firm.

Epiroc Annual and Sustainability Report 2020 145 THE EPIROC SHARE The Epiroc share

Listing and shares Personnel stock option program Epiroc’s shares were listed on Nasdaq Stockholm on June 18, and repurchase of own shares 2018 at an opening price of SEK 88.0 and SEK 84.0 respec- The Board of Directors will propose to the Annual General tively (A and B share). A shares entitle the owner to one vote Meeting 2021 a similar performance-based long-term incen- while B shares entitle the owner to one tenth of a vote. tive program as in previous year. The intention is to cover the A shares and B shares carry equal rights to a part of the com- plan through the repurchase of the company’s own shares. pany’s assets and profit. The company’s holding of own shares on December 31, 2020 appears in the table on the next page. Return and market capitalization In 2020, the price of the A share increased 30.9% (36.4% in Dividend, redemption and dividend policy 2019) to SEK 149.65 and the price of the B share increased The Board of Directors proposes a distribution to sharehold- 25.2% (40.8) to SEK 139.00. The corresponding development ers of SEK 5.50 per share for the fiscal year 2020 through: for OMXSPI, i.e all shares, and OMX Stockholm Industrials – A dividend of SEK 2.50 (2.40) per share (SX2000PI) was 12.9% and 13.4%, respectively. Epiroc’s market – A distribution of SEK 3.00 per share through mandatory capitalisation at the end of 2020 was MSEK 177 483 (137 504). redemption. The dividend is proposed to be paid in two equal instal- Trading ments. Epiroc’s goal is to provide long-term stable and rising Epiroc was the 24th (26th) most traded name on Nasdaq dividends to its shareholders. The dividend should cor- Stockholm during the year. The total turnover in Epiroc respond to 50% of net profit over the cycle. The proposed shares was BSEK 68.4 (53.6), corresponding to average daily dividend correspond to 56% (49) of earnings per share. turnover of MSEK 271.3 (214.3). Nasdaq Stockholm accounted for 34% (39) of the total trading in Epiroc in 2020. Around 44% (23) of the trading was conducted on the open market, while Shareholders by country, the remainder was outside the public market, e.g. through December 31, 2020, % of capital over-the-counter trading and dark pools.

Ownership structure At the end of 2020, Epiroc had 67 162 (70 717) sharehold- S w e d e n ers. The ten largest shareholders registered directly or as a United States U n i t e d group with Euroclear Sweden, the Swedish Central Securities Kingdom Depository, by voting rights, accounted for 35.0% (33.5) of the O t h e r voting rights and 33.5% (33.0) of the number of shares. Swed- ish investors held 47% (47) of the voting rights and 46% (46) of number of shares.

Ten largest shareholders*

December 31, 2020 A shares B shares Total shares % of votes % of capital

Investor AB 194 915 960 12 841 885 207 757 845 22.7 17.1 Alecta Pensionsförsäkring 29 447 000 40 706 588 70 153 588 3.9 5.8 Swedbank Robur Fonder 12 886 883 14 140 970 27 027 853 1.7 2.2 Handelsbanken fonder 15 020 187 8 886 966 23 907 153 1.8 2.0 AMF Försäkring och Fonder 706 856 15 272 646 15 979 502 0.3 1.3 Folksam 9 075 645 5 031 353 14 106 998 1.1 1.2 Didner & Gerge 1 802 415 11 885 973 13 688 388 0.4 1.1 SEB Investment Management 13 116 543 205 298 13 321 841 1.5 1.1 Första AP-fonden 7 896 070 4 463 671 12 359 741 1.0 1.0 Nordea Investment Funds 5 394 911 3 067 253 8 462 164 0.7 0.7 Other 533 503 384 273 470 246 806 973 630 65.0 66.5

Total 823 765 854 389 972 849 1 213 738 703 100.0 100.0 Whereof shares held by Epiroc 7 814 213 - 7 814 213 0.9 0.6

*Shareholders registered directly or as a group with Euroclear Sweden, the Swedish Central Securities Depository.

146 Epiroc Annual and Sustainability Report 2020 THE EPIROC SHARE

Key figures per share

SEK 2019 2020 Market capitalization, year end, MSEK 137 504 177 483 Epiroc’s strengths Basic/diluted earnings per share 4.89 4.48 Dividend per share 2.40 2.50* Dividend as % of earnings 49 56* We are a leading Operating cash flow per share 5.57 5.80 productivity and Equity per share, year end 19.02 19.71 sustainability partner in A/B Share price, year end 114.35 /111.05 149.65/139.0 A/B Highest share closing price 118.55/115.00 152.05/142.7 attractive niches A/B Lowest share closing price 82.42/77.51 79.52/78.54 A/B Average closing price 99.11/94.61 120.54/117.08 A/B Price/Earnings ratio, year end 23.4/22.7 33.4/31.0 We have a high proportion * As proposed by the Board of Directors. In addition, the Board proposes a of recurring business mandatory redemption of SEK 3.00 per share.

Share information

December 31, 2020 A share B share We drive the future Nasdaq Stockholm EPI A EPI B in intelligent mining ISIN code SE0011166933 SE0011166941 and infrastructure Total number of shares 823 765 854 389 972 849 – % of votes 95.5 4.5 – % of capital 67.9 32.1 Whereof shares We have a strong and held by Epiroc 7 814 213 – proven operating model – % of votes 0.9 – – % of capital 0.6 –

Important dates April 28, 2021 Q1 2020 We create value for April 28, 2021 Annual General Meeting our stakeholders in Nacka, Sweden July 20, 2021 Q2 2020 October 21, 2021 Q3 2020

Share price development

176 165 154 143 132 121 110 99 88 77 66 55 44 33 22 11 0 0 0 0 0 0 0 0 0 Jul-18 Jul-18 Jul-19 Jul-19 Jul-2 Jul-2 Jan-19 Jan-19 Oct-2 Oct-2 Apr-2 Jun-20 Jun-20 Jun-18 Oct-18 Oct-18 Mar-19 Mar-19 Apr-19 Jun-19 Jun-19 Oct-19 Oct-19 Jan-20 Jan-20 Sep-20 Sep-20 Mar-2 Aug-18 Aug-18 Sep-18 Sep-18 Nov-18 Nov-18 Dec-18 Dec-18 Feb-19 Feb-19 Aug-19 Aug-19 Sep-19 Sep-19 Nov-19 Nov-19 Dec-19 Dec-19 Feb-20 Nov-20 Nov-20 Dec-20 May-20 May-20 Aug-20 Aug-20 Apr-2 May-19 May-19 Mar-2

Epiroc A Epiroc A, Total Shareholder Return Stockholm All share, index Stockholm Industrials, index

Epiroc Annual and Sustainability Report 2020 147 ADDRESSES

Further information

Capital markets Postal address For shareholders and Epiroc AB financial analysts P.O. Box 4015 [email protected] SE - 131 04 Nacka Sweden Media For journalists Visitors’ address [email protected] Sickla Industriväg 19 SE – 131 54 Nacka Corporate responsibility Sweden For non-governmental Telephone organizations and others +46 10 755 00 00 [email protected] www.epirocgroup.com Sales and services For customers www.epiroc.com

It takes courage to be at the forefront of development, but the benefits to be achieved – an improved working environment and a reduced carbon footprint – are worthy. The field tests of Epiroc’s battery-powered mining machines turned the eyes of the entire mining world to the Agnico Eagle Finlands’ Kittilä mine. Now, the mine’s first own battery- powered rigs, two Boltec E Battery bolting units, have successfully started in production.

148 Epiroc Annual and Sustainability Report 2020 Water for All

Access to clean water is a human All organization investigate and the Epiroc Group and Atlas Copco right. Since 1984, our main com- select a partner to work with and Group. Employee donations are munity engagement project, Water subsequently a water project to matched with twice as much by for All, has funded projects which support. The project could involve the companies. empower people through access drilling and digging a well or pro- In 2020, more than 60 water and to clean drinking water, sanitation tecting a natural water resource. sanitation projects were imple- and hygiene, thereby contributing It could also be building a system mented with Water for All funding to healthy societies. for rainwater harvesting or building in 34 countries, in total reaching There is a focus on women sanitation or sewer systems. more than 220 000 people. and girls since they are particu- Water for All is run on a volun- For more information, see larly affected. The local Water for tary basis by employees within www.water4all.org

Production: Epiroc in cooperation with Oxenstierna Kommunikation and Purple-Ivy Photo: Epiroc Image bank Print: BrandFactory Epiroc’s Epiroc’s strengths sustainability focus areas

We are a leading We use resources productivity and responsibly and sustainability partner in efficiently attractive niches

We have a high proportion We invest in safety of recurring business and health

We drive the future We live by the highest in intelligent mining ethical standards and infrastructure

We grow together with We have a strong and passionate people and proven operating model courageous leaders

We create value for our stakeholders 9862 0045 01 0045 9862

United in performance. Inspired by innovation. Performance unites us, innovation inspires us and commitment drives us to keep moving forward. Count on Epiroc to deliver the solutions you need to succeed today and the technology to lead tomorrow. epiroc.com